Brown v. Gilman
17 U.S. 255 (1819)

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U.S. Supreme Court

Brown v. Gilman, 17 U.S. 4 Wheat. 255 255 (1819)

Brown v. Gilman

17 U.S. (4 Wheat.) 255

APPEAL FROM THE CIRCUIT

COURT OF MASSACHUSETTS

Syllabus

The scrip or certificate holders in the association called the New England Mississippi Land Company hold their shares under the company itself, as a part of the common capital stock, and are not considered as holding derivatively, and solely as individual sub-purchasers, under the separate original titles of the original purchasers from the Georgia Mississippi Company, so as to be affected by any circumstances of defect in these separate original titles, these titles being in fact now vested in the trustees of the New England Mississippi Company itself as part of its common stock, and not in the individual holders.

The equitable lien of the vendor of land for unpaid purchase money is waived by any act of the parties showing that the lien is not intended to be retained, as by taking separate securities for the purchase money.

An express contract that the lien shall be retained to a specified extent is equivalent to a waiver of the lien to any greater extent.

Where the deed itself remains an escrow until the first payment is made, and is then delivered as the deed of the party, and the vendor consents to rely upon the negotiable notes of the purchaser endorsed by third persons for the residue of the purchase money, this is such a separate security as extinguishes the lien.

Page 17 U. S. 256

This cause was by consent heard upon the bill, answer, and exhibits in the case. The material facts were these:

In the month of January, 1796, sundry persons, and among them William Wetmore, purchased of the agents of certain persons in Georgia called the Georgia Mississippi Company, then in Boston, a tract of land, then in the State of Georgia and now in the Mississippi Territory, estimated to contain 11,380,000 acres, at ten cents per acre, which tract the Georgia Mississippi Company had purchased of the State of Georgia, and had received a grant thereof in due form of law. The conditions of the purchase were that the purchase money should be paid as follows, viz., two cents thereof on or before the first day of May, 1796. one cent more, on or before the first day of October, 1796. two and a half cents more on or before the first day of May, 1797. two and a half cents more on or before the first day of May, 1798, and the remaining two

Page 17 U. S. 257

cents on or before the first day of May, 1799. The whole of the purchase money was to be secured by negotiable notes of the several purchasers, with approved endorsers, to be made payable to Thomas Cumming, President of the Georgia Mississippi Company or order, payable at the Bank of the United States at Philadelphia or at the branch bank at Boston, and to be delivered to the agents upon the execution of the deed of conveyance by them. It was further agreed that the deed, when executed, should be placed in the hands of George R. Minot, Esq., as an escrow, to be delivered over by him to the grantees upon the first payment of two cents, payable in May, 1796, for which first payment, and for that only, the purchasers agreed to hold themselves jointly responsible.

Accordingly, a deed of conveyance was executed by the agents, dated 13 February, 1796, to certain grantees named by the purchasers, to-wit, William Wetmore, Leonard Jarvis, and Henry Newman, in trust for the purchasers, and the same was duly placed in the hands of Mr. Minot as an escrow, and negotiable notes, with approved endorsers, were duly delivered to the agents by all the purchasers for their respective shares of the purchase money. And afterwards, the first payment of two cents having been satisfactorily made to the agents, the said deed was, with their consent, delivered over to the grantees as an absolute deed, and a deed of confirmation thereof was afterwards, in February 1797, duly executed and delivered to the grantees by the Georgia Mississippi Company.

After the purchase and before the delivery of the deed,

Page 17 U. S. 258

the purchasers formed themselves into an association by the name of the New England Mississippi Land Company, and executed sundry articles of agreement, and among other things, therein agreed that the deed of the purchase should be made to Jarvis, Newman and Wetmore, as grantees as above stated; (art. 2d) that they should execute deeds to the several original purchasers for their proportions in the lands, but should retain these deeds, until the purchasers should sign and execute the articles of association, and should also execute a deed of trust, to certain trustees, as provided for in the articles, of such their respective shares in the purchase; (art. 3d) that the several purchasers should execute a deed of trust to Jarvis, Newman, and William Hull, of their respective shares in the purchase to hold to them and the survivor of them in trust, to be disposed of according to the articles; (art. 4th) that the business of the association should be managed by a board of directors, who were to have full power and authority to sell and dispose of the whole or any part of the property of the company, and to pay over to their respective proprietors their proportions of the money received from any and every sale, &c.; (art. 8, 16, 20) that upon receiving a deed from any purchaser, according to the tenor of the articles, the trustees were to give to each proprietor a certificate, in a prescribed form, stating his interest in the trust, and that he should hold it according to the articles of the association, which certificate was recorded in the company's books and was to be "complete evidence to such person of his right in said purchase," and was

Page 17 U. S. 259

to be transferable by endorsement, and upon a record of the transfer in the company's books, the transferee was to be entitled to vote as a member of the company. The share of Mr. Wetmore in the purchase was 900,000 acres. He paid the two cents per acre in cash, and of the notes given by him for the purchase money, $40,000 were paid by Mrs. Sarah Waldo, his endorser, and the residue, $45,000, still remained unpaid. Mr. Wetmore received his certificates from the trustees for his whole purchase, and having sold or conveyed 500,000 acres, he afterwards conveyed the remaining 400,000 acres to Robert Williams, to whom certificates for that amount were duly issued by the trustees, three of which certificates, each for 20,000 acres, duly endorsed by said Williams, came into the plaintiff's, Mrs. Gilman's, hands, for a valuable consideration, and the assignment thereof having been duly recorded in the company's books, she was admitted and had always acted as a member of the company.

From causes well known to the public, the New England Mississippi Land Company never obtained possession of the tract of land so conveyed to them. On 31 March 1814, Congress passed an act entitled, "An act providing for the indemnification of certain claimants of public lands in the Mississippi Territory." By this act and other subsequent acts amending the same, it was provided that the claimants of the lands might file in

Page 17 U. S. 260

the office of the Secretary of State a release of all their claims to the United States and an assignment and transfer to the United States of their claim to any money deposited or paid into the Treasury of Georgia, such release and assignment to take effect on the indemnification of the claimants according to the provisions of the act. Commissioners were to be, and were accordingly, appointed under the act who were authorized to adjudge and determine upon the sufficiency of such releases and assignments and also to

"adjudge and determine upon all controversies arising from such claims so released as aforesaid, which may be found to conflict with, and to be adverse to each other."

And the sum of $1,550,000, to be issued in public stock, was appropriated by the act to indemnify the claimants claiming in the name of or under the Georgia Mississippi Company. The New England Mississippi Land Company duly executed the release and assignment required by the act of Congress, and presented the claims of the whole company before the commissioners. The commissioners awarded the company the sum of $1,083,812 in stock, certificates for which were duly issued, under the act of Congress and received by the treasurer of the company. A further claim was made for the whole amount of the original share of Mr. Wetmore, but the board of commissioners decided that the Georgia Mississippi Company had a lien in equity on the land sold and conveyed to said Wetmore, for the purchase money due and unpaid by said Wetmore, and that the indemnity under the act of Congress should follow that lien and be awarded to said

Page 17 U. S. 261

Georgia Mississippi Company to the amount thereof. And inasmuch as the said Sarah Waldo was the holder of certain certificates issued by said trustees, on account of said Wetmore's original purchase, the commissioners further awarded, that the sum of $40,000 of the purchase money (which had been paid or satisfied by her for said Wetmore, on her endorsement) should be applied first to make good the scrip or certificates so issued to her, and that if there was any surplus after making her scrip or certificates good, such surplus could not be applied to the scrip or certificates held under Robert Williams, who did not become the assignee of the said Wetmore until after the said sum was paid.

And the commissioners further decided that the certificates issued by the trustees on account of any of the original purchasers who failed to make payment of the purchase money to the Georgia Mississippi Company were bad, and that the parties claiming under them must lose their indemnity under the act of Congress. By this award of the commissioners, the claim of the New England Mississippi Land Company for the amount of the share of the plaintiff was completely excluded. But the plaintiff claimed her share of the stock actually received as a proprietor in the New England Mississippi Land Company notwithstanding the award of the commissioners, and to establish this claim the present suit was brought, and in her bill she averred that she was a bona fide purchaser for a valuable consideration without notice of the nonpayment of the purchase money

Page 17 U. S. 262

by Mr. Wetmore, which averment was not denied by the answer. The court below decreed that the complainant was entitled to the relief she claimed, and the cause was brought by appeal to this Court.

Page 17 U. S. 277

MR. CHIEF JUSTICE MARSHALL delivered the opinion of the Court.

The question to be decided is whether, under all the circumstances of this case, the New England Mississippi Land Company or Mary Gilman shall lose the sum awarded by the commissioners to the Georgia Mississippi Company in satisfaction for the lien that company was supposed to retain on the lands they sold, for the nonpayment

Page 17 U. S. 278

of the notes of William Wetmore given for the purchase money on his interest in the purchase.

In examining this question, the nature of the contract, the motives of the New England Mississippi Company, and their acts are all to be considered. The contract was made in January, 1796, for 11,380,000 acres of land lying within the country occupied by the Indians, whose title was not extinguished. The purchase money, amounting to $1,380,000, was to be divided into five installments, the first of which, amounting to $113,800, was to be paid on 1 May, 1796, and the last on 1 May, 1799. It is obvious that this purchase could not have been made with a view to hold all the lands. The object of the purchasers must have been to make a profit by reselling a great part of them. Accordingly we find them making immediate arrangements to effect this object. In February, 1796, before the legal title was obtained, the purchasers formed an association, by which it was, among other things, agreed that the land should conveyed to three of their partners, Leonard Jarvis, Henry Newman and William Wetmore, for the use and benefit of the company. It was also agreed that seven directors should be appointed, with power to manage their affairs, and after the company should be completely organized, as prescribed in the articles of association, to sell their lands for the common benefit of the proprietors. In addition to this mode of selling the lands themselves, which might be slow in its operation, it was agreed that each proprietor might transfer his interest, in whole or in part, and to facilitate

Page 17 U. S. 279

this transfer, the whole purchase was divided into 2,276 shares, and it was determined that an assignable certificate should be granted to each proprietor or to such person as he should appoint stating the amount of his interest in the company. No certificate was to issue for less than one share.

It is of great importance to inquire how far the company pledged itself to the assignee of this certificate and how far it was incumbent on him to look beyond the certificate itself in order to ascertain the interest which it gave him in the property of the company. In pursuing this inquiry, we must look with some minuteness into the state of the property and the articles of association, as well as into the language of the paper which was to evidence the title of the holder. Although the association was formed before the lands were conveyed, no certificate was to issue until the legal title in the company should be as complete as it could be made. It was obviously necessary for the purchasers, before they proceeded to sell, to examine well their title and to use every precaution which prudence could suggest for its security. This appears to have been done. On 13 February, 1796, a deed was executed by the Georgia Company purporting to convey the lands to William Wetmore, Leonard Jarvis, and Henry Newman, and afterwards, in February, 1797, a deed of confirmation was executed and delivered. By these deeds, the Georgia Company certainly intended to

Page 17 U. S. 280

pass and the New England Company expected to receive the legal title.

The articles of association direct these trustees to convey the purchased lands to the proprietors as tenants in common, who are immediately to reconvey them to Leonard Jarvis, Henry Newman, and William Hull in trust to be disposed of according to the articles. The certificate granted to each proprietor, for the purpose of enabling him to dispose of his interest, certifies that he is entitled to the trust and benefit of a certain specified proportion of the property contained in the trust deed,

"to hold said proportion or share, to him, his heirs, executors, administrators and assigns according to the terms, conditions, covenants, and exceptions contained in the said deed of trust, and in certain articles of agreement entered into by the persons composing the New England Mississippi Land Company."

This certificate purports on its face to be transferable by endorsement. If it amounted to no more than a declaration that the holder had a right to sell a specified part of the common property, it would be difficult to maintain that the company could afterwards charge this part exclusively with a preexisting encumbrance. But the certificate proceeds further and declares that the share or shares thus transferred shall be held according to the terms, &c., of the deed of trust and of the articles of agreement. So far, therefore, as that deed or those articles encumber the property, it certainly remains encumbered in the hands of the assignee. To what

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extent does either of those instruments affect the case?

The deed from the proprietors to Jarvis, Newman, and Hull recites the grant of the State of Georgia, the conveyance of the grantees to Wetmore, Jarvis, and Newman in trust for the New England Company, the conveyance of those trustees to the members of the company, to hold as tenants in common, according to their respective interests, and adds that it is found necessary and expedient that the premises should be conveyed

"in trust to Leonard Jarvis, Henry Newman, and William Hull, Esquires, to have and to hold the same, subject to all the trusts, provisions, restrictions, covenants and agreements, contained in certain articles of agreement, constituting the New England Mississippi Land Company;"

therefore, and in consideration of ten dollars, the parties of the first part, severally

"remise, release and forever quit-claim to the said Jarvis, Newman, and Hull all the interest, &c., which they have, or ever had, or of right ought to have, in the premises, subject, however, to and for the purposes mentioned in the agreement constituting the New England Mississippi Land Company. The parties of the first part, each for himself,"

and no further, covenant that the premises are free and clear of all encumbrances by him made or suffered to be made and warrant the same against himself and all claiming under him.

A separate conveyance was made by Wetmore, Jarvis, and Newman to John Peck, who conveyed

Page 17 U. S. 282

to Jarvis, Newman, and Hull. But these conveyances are not supposed to vary the case. In this deed of trust, each proprietor covenants for his own title, not for that of his co-partners. This has been supposed to give notice to the assignee of each certificate issued by the company that the property conveyed did not constitute a common stock in the hands of the trustees out of which each holder was to draw in proportion to his interest, as expressed in the face of his title paper, but that the interest of each co-partner was limited to the product of his own share, as under the original purchase, and that the holder of every certificate was bound to trace his title through the particular original purchaser under whom he claims and in whose place he stands.

We do not think the fact will sustain the argument. This deed conveys the estate of each partner to the company, and the covenants it contains ascertain the extent of each partner's liability for the title it passes. The lands thus conveyed are held by the company in like manner as if they had been conveyed by persons who were not members of it. The legal title is in the company; the power to sell is in the company; and if it was intended that the right of each individual to dispose of his interest should depend on the validity of the title he had made and that the purchaser of such interest took it subject to any encumbrance with which the estate conveyed might have been burdened, previous to its conveyance, it would have been unnecessary to make any

Page 17 U. S. 283

provision respecting the sale of such interest. The right of sale is connected with the right of property and without any regulation whatever, each member would have possessed it to the extent of his property. The object for granting the certificate seems to have been to enable each shareholder to sell unobstructed by those entangling embarrassments which may attend a mere equitable title. The object, in which every member was equally concerned, could not be effected without giving to each some evidence of his title, which should make it unnecessary for the purchaser to look further in order to ascertain his interest in the general fund, whatever that fund might be.

The history of the title, as well as the words of the certificate, would confirm this opinion. From its origin, every step of its progress was marked out and controlled by the company. The legal title was, by their order, conveyed to three persons, selected by themselves, and the deed contains no allusion to the interest of other purchasers. By this order also, the title which was then made to the several purchasers was immediately reconveyed to trustees in whom the company confided, to uses and purposes expressed in certain articles of agreement which the company had formed. They guarded the title against encumbrances from individuals, and this watchfulness was for the double purpose of enabling their agents to sell the lands themselves for the common benefit and enabling each member to sell to the best advantage his particular interest in that fund. It was scarcely possible for any individual to have encumbered the title after it was received by the first agents

Page 17 U. S. 284

of the company, and against defects in the title conveyed by the Georgia company the certificate does not profess to engage.

The article of agreement, to which also the certificate refers, explain fully the views of the company. The great object of the association is to sell their lands to advantage; this is too plainly expressed to be mistaken. The words "terms, conditions, covenants and exceptions," contained in the certificate, refer chiefly to provisions respecting the sale of lands and to others which recognize the absolute control over the property which each member had ceded to the whole body. It is unnecessary to recite the particular articles which tend to this general result; it is the spirit which pervades the whole association. Only those articles which relate to the certificate need be adverted to. The 11th article divides the whole purchase into 2,276 shares. The 12th directs that a transferable certificate shall be given to each proprietor, prescribes its form, directs it to be recorded, and declares that it shall be complete evidence to such person, of his right in the purchase. No assignee is admitted as a member to vote in the affairs of the company until his assignment shall be recorded. The 13th declares that no certificate shall issue for less than one share and that the holder of any certificate for a larger quantity may at any time surrender it to the trustees and take out others for such quantities as he may choose. The 16th obliges the directors to pay over to the

Page 17 U. S. 285

respective proprietors their proportions of the moneys received from any and every sale as soon after the receipt thereof as may be.

It is not more apparent that the general object of the association was to promote the sale of their lands than it is that the particular object of this certificate and of the articles which relate to it was to enable every proprietor to avail himself of his individual interest and to bring it into circulation. On no other principle can we account for subdividing the stock of the company into such small shares, for issuing the certificate itself, for making it assignable, for declaring that it shall be complete evidence of title to that quantity of interest which is expressed on its face, for enabling every holder, by surrendering his certificate, to divide it as his convenience might suggest, and for declaring that each holder shall receive his proportion of the money arising from the lands which might be sold. All these provisions tend directly to the same object and are calculated for the single purpose of affording to each member of the company every possible facility in selling his share of the stock. In this operation all were equally interested; every member of the company was alike concerned in removing every obstruction to the free circulation of his own certificate, which could only be done by making it complete evidence of title -- an advantage which, to be acquired by him, must be extended to all. In the particular benefit accruing to each member of the company from this arrangement, a full consideration was received for his joining in it. It is a mutual assurance in which all the

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members pledge themselves for each that he is really entitled to sell what he offers for sale.

The articles of agreement, then, strengthen, instead of weakening, the language of the certificate. They prove that the company must have intended to give it all the credit they could bestow on it, and to give to the assignee all the assurance they could give him that he would stand on the same ground with other members and was liable to no casualty to which they were not all exposed.

It was scarcely possible for any member, unless it be one of the original agents, to have eluded the precautions of the company and have parted with or encumbered any portion of his estate. But suppose the fact to have happened and a certificate to have issued from any accident whatever to him for a larger interest than that to which he was really entitled, would an assignee, without notice, have been affected by this error on the part of the company? We think it clear that he would not. The company has itself undertaken to judge of his title, and for its own purposes, for the advantage of all its members, to certify what that title is. The object and effect of that certificate is to stop inquiry. The company has pledged its faith that the title under this certificate shall not be questioned. This is not all; the articles require that an assignee shall have his assignment recorded; here is a second confirmation of title.

We find a number of persons associated together for the purpose of purchasing an immense body of land which they expect to resell upon a profit.

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They watch the progress of the title, direct its course, leave no power to individuals over their individual shares, but keep the whole under the control of the company until they are perfectly satisfied with the state in which they have placed it. The legal title is, by their order, vested in three trustees, who are to be controlled by seven directors. Then, in order to enable each proprietor to dispose of any portion of his interest which he may incline to sell, assignable certificates are issued declaring that the holder is entitled to a specified share of the land. This certificate refers to certain laws of the company, and these laws declare that such certificate shall be complete evidence of title, that the assignee shall become a member of the company, authorized to vote on having his assignment recorded in books kept for that purpose. These certificates are offered to the public; confiding to the promise they contain, an individual becomes a purchaser, has his assignment recorded, and is received, without objection, as a member. If any latent defect exists in the title of one of the original purchasers which was unknown to the company when the certificate issued, we think the company cannot set up this latent defect against an assignee. The company possessed the means of obtaining full information of all circumstances which could affect to title, so far as information was attainable. They undertook to judge of it and to assert unconditionally that the holder of the certificate was entitled to the quantity of interest it specified. However true it may be that the individual in whose default this defect originated

Page 17 U. S. 288

might be held accountable for it, we cannot agree that the assignee stands in his place. The company which would set it up against him has inquired into the title; has, for its own purposes, assured him that it is perfect, and, upon the faith of this assurance, he has purchased. Had he taken an equitable interest in trust, relying upon the faith of the vendor, his equity, it is conceded, would not be better than that of the vendor; but he had relied upon the company. He has mounted up to the source of the equitable title, and is there assured of its goodness. The company can never be permitted to say that, being themselves mistaken, it has imposed innocently upon him, and that therefore it will throw the loss from itself on him.

If, then, Mr. Wetmore had really, by any act of his, diminished the estate he carried into the common stock, and if the deduction of his share from the sum awarded to the company had been proper, he would have been personally answerable to the company for such diminution; but we do not think this liability passes with the certificate to his assignee without notice. We do not think the company could be permitted to assert against the assignee, the right they might assert against Mr. Wetmore.

But this is not a defect in the title itself, created, voluntarily created, by Mr. Wetmore. It is a still weaker case on the part of the company. A sum of money equal to the claim of the plaintiff has been awarded to the Georgia, instead of the New England, company by the commissioners under the idea that so much of the original purchase money

Page 17 U. S. 289

remained unpaid, and that a lien on the lands they sold was still retained by the Georgia company. As this failure was on the part of Mr. Wetmore, the New England company claims the right of subjecting to this loss the shares of Mrs. Gilman which were derived from certificates issued on the stock of Mr. Wetmore. On the part of Mrs. Gilman it is contended 1. that this lien did not exist, and if it did, 2. that it affects her only as a member of the company.

The commissioners determined in favor of the lien because they considered the New England company as holding only an equitable estate. The deeds from the Georgia to the New England company certainly purport to pass, and were intended to pass, the legal title. The only objection we have heard to their having the operation intended by the parties is that they were not recorded, and that the Legislature of Georgia passed an act which forbade their being recorded. But by the laws of Georgia, a deed, though not recorded within the time prescribed by law, remains valid between the parties, and were it even otherwise, it might well be doubted whether this deed would not retain all the validity it possessed when executed, since its being recorded is rendered impossible by act of law. Could it even be admitted that the deeds passed only an equitable estate, it might well be doubted whether the Georgia company, as plaintiffs in equity, could, under all the circumstances of this case stand on better ground than if their deed had operated as they intended it should operate.

Page 17 U. S. 290

But the Court considers the title at law as passing by the deeds to the New England company, and remaining with them, although those deeds were not recorded. If this opinion be correct, even admitting the law of England respecting the lien of vendors for the purchase money after the execution of a deed to be the law of Georgia, a point which we do not mean to decide, we think it perfectly clear that no lien was retained, and none intended to be retained, in this case. It must have been well known to the Georgia company that the purchase was made for the purpose of reselling the lands, and of consequence that it was of great importance to the purchasers to have a clear unencumbered title, and the event that the property might pass into other hands before the whole purchase money was paid was not improbable. In the original agreement, an express stipulation is made that the property shall remain liable for the first payment, but that separate securities shall be taken for the residue of the purchase money. The deed itself remains an escrow until the first payment shall be made, and is then to be delivered as the deed of the parties, after which the vendors consent to rely on the several notes of the respective purchasers. This is equivalent to a mortgage of the premises to secure the first payment, and a consent to rely on the separate notes of the purchasers for the residue of the purchase money. The express contract that the lien shall be retained to a

Page 17 U. S. 291

specified extent is equivalent to a waiver of that lien to any greater extent. The notes, too, for which the vendors stipulated are to be endorsed by persons approved by themselves. This is a collateral security on which they relied and which discharges any implied lien on the land itself for the purchase money. We think this, on principles of English law, a clear case of exemption from lien.

Could this be doubted, it would not alter the obligation of the New England company to Mrs. Gilman. If they were in the situation of purchasers with notice, it must be with a very ill grace that they set up against her particular interest after having induced her to purchase by the assurance that she came into company on equal terms. If they were purchasers without notice, the lien is gone.

We are unanimously of opinion that the sum deducted from the claim of the New England company by the commissioners is chargeable on the fund generally, not on the share of Mrs. Gilman particularly.

Some doubt was entertained on the question whether Mrs. Gilman should recover from the parties to this suit her proportion of the money received by them or her proportion, after deducting therefrom, the sum she would be entitled to receive from those members who obtained an order from the commissioners by which they received directly, and not through the agents of the company, the sums to which they were entitled. The majority of the Court directs me to say that in this respect also, the

Page 17 U. S. 292

decree is right, and that the company or its agents have the right to proceed against those members for what they have received beyond their just proportion of the whole sum awarded to the company.

Decree affirmed, with costs.

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