The Real Estate Bank of Arkansas was established on a loan by
the State of Arkansas of its bonds, which the bank sold to form its
capital. The stockholders gave their bonds and mortgaged their
lands to the extent of their subscriptions. Notrebe subscribed for
three hundred shares, and mortgaged his land for thirty thousand
dollars.
Notrebe sold the land with a covenant of warranty, and then
died. The purchaser paid all the money, and the widow and heir at
law of Notrebe offered to convey the land by a deed, with a
covenant of warranty of title.
The circuit court, sitting as a court of equity, decreed that
the executors should remove the encumbrance whenever it could be
done, and in the meantime they should deposit with the clerk of the
court bonds of the State of Arkansas to an amount sufficient to pay
Notrebe's subscription, with interest, in case the bank should
prove a total loss.
This decree was erroneous.
The purchaser must rely upon his remedy at law under the
covenant of warranty. He can either take the deed offered by the
widow and heir at law or retain the original agreement.
The cases examined upon the point, how far a court of chancery
will interfere in such a case.
The case is fully stated in the opinion of the Court.
Page 63 U. S. 325
MR. JUSTICE CAMPBELL delivered the opinion of the Court.
The appellee Woodfolk filed this bill in the circuit court
against the executors and heirs of Frederick Notrebe, deceased, and
the trustees of the Real Estate Bank of Arkansas.
He represents that in 1845, he concluded an agreement with
Notrebe for the purchase of fourteen hundred and seventy-eight
acres of unimproved land in Arkansas for fifteen thousand five
hundred and eighteen dollars, a portion payable in cash and the
remainder in installments, secured by his notes and bond. Notrebe
and his wife obligated themselves, when the payment should be
completed, to convey to him the land in fee simple, "by a good and
sufficient deed, with general warranty of title, duly executed,
according to law."
The appellee has established a plantation upon the land, and has
greatly improved its value. He completed the payment in 1850, when
the executor of Notrebe offered a deed executed by his widow and
heir-at-law, in which there was a covenant of warranty, in
fulfillment of the agreement of his testator. The appellee declined
to accept this because the land had been mortgaged to the Real
Estate Bank of Arkansas in 1837 by Notrebe, to secure the payment
of his note for thirty thousand dollars, payable in October, 1861,
with five percent interest annually, which Notrebe had given for
three hundred shares of the stock of that bank. The appellee
charges that the existence of this mortgage was concealed from him
until after the conclusion of his agreement, and that afterwards he
was deceived by misrepresentations of the condition of the title,
until he had paid the whole of the purchase money. He prays that
the title be examined, and that the defendants be required to
remove the encumbrance or to give him effectual indemnity against
it, and that the distribution of the estate of Notrebe be
restrained until this be done.
The defendants answered the bill and have successfully repelled
the imputations of fraud and misrepresentation, but admit the
existence of the mortgage, and fail to impair its validity.
The circuit court, upon the pleadings and proofs, declared
Page 63 U. S. 326
that the "entire transaction" between Notrebe and the appellee
"was
bona fide and free from fraud," and that the latter
had notice of the mortgage as a subsisting and operative
encumbrance upon the land before he concluded his contract, but
that Notrebe had agreed to convey the land free of encumbrance and
with warranty of title, and that the vendee is entitled to the
performance of that contract, but that the debt of the decedent,
not being at maturity, and of a character not to be ascertained
before that time, all that could be done would be to provide an
indemnity against the peril it created.
The court proceed to require of the executors to remove the
encumbrance whenever it can be done, and then to convey the land by
a deed with warranty, and with the relinquishment of dower by the
widow, and meanwhile that they should deposit with the clerk of the
court bonds of the State of Arkansas for the amount of Notrebe's
note and the interest, $61,500, to be held and appropriated under
the order of the court as indemnity, or that the executors might,
in part or for the whole, convey to the clerk unencumbered real
estate of the same value, for the same object and under the same
conditions.
The Real Estate Bank was established on a loan by the State of
Arkansas of its bonds, which the bank sold to form its capital. The
principal and interest of these bonds were to be paid by the bank,
and its means of doing so were afforded by the securities obtained
from the loan of its capital and profits of business, and the bonds
and mortgages of the stockholders, to the extent of their
subscription of stock. Each stockholder having given a bond and
mortgage to the bank corresponding to the
pro rata amount
of the state bonds issued to the bank, as compared with the stock,
and which were pledged for the payment of the state bonds, the sum
to be paid by any shareholder on this debt depends upon the degree
of the insolvency of the bank. In case of the loss of its entire
capital, the stockholder becomes liable to pay his entire debt.
The pleadings and proofs in this case show that the bank has
suffered a loss of a portion of its capital, but no data are
afforded to ascertain the amount of the loss. The decree of
Page 63 U. S. 327
the circuit court assumes that the loss may be total, and the
indemnity awarded was determined as if the fact would correspond
with the possibility. This appeal was made to test the validity of
this decree.
A court of chancery regards the transfer of real property in a
contract of sale and the payment of the price as correlative
obligations. The one is the consideration of the other, and the one
failing, leaves the other without a cause. In
Ogilvie v.
Foljambe, 3 Mer. 53, Sir William Grant says:
"The right to a good title is a right not growing out of the
agreement of the parties, but which is given by law. The purchaser
insists on having a good title, not because it is stipulated for by
agreement, but on the general right of a purchaser to require
it."
Upon this principle, a vendor is allowed a lien or privilege for
the price of the property against the vendee and his assigns, and
the vendee is permitted to appropriate the purchase money, to
exonerate his estate from a lien or encumbrance, and in some cases
to compensate for original defects in the estate as respect its
quantity, quality, or extent of vendor's interest therein.
The cases cited on the part of the appellee support this
doctrine and confirm the argument that he was entitled, under his
contract, having no reference to extrinsic circumstances, to the
fee simple estate, without diminution.
Galloway
v. Findley, 12 Pet. 264;
Burwell v.
Jackson, 5 Seld. 535;
Cullum v. Bank of Ala., 4. Ala.
21.
But such circumstances may very materially modify the situation
of the parties and indispose that court to interfere between them,
even in cases within the jurisdiction of the court. If the contract
has been executed by the delivery of possession and the payment of
the price, the grounds of interference are limited by the covenants
of the deed, or to cases of fraud and misrepresentation. "The cases
will show," say this Court,
"that a purchaser in the undisturbed possession of the land will
not be relieved against the payment of the purchase money on the
mere ground of defect of title, there being no fraud or
misrepresentation, and that in such a case he must
Page 63 U. S. 328
seek his remedy at law on the covenants in his deed; that if
there is no fraud and no covenants to secure the title, he is
without remedy, as the vendor, selling in good faith, is not
responsible for the goodness of his title beyond the extent of the
covenants in his deed.
Patton v. Taylor, 7 How.
132."
This rule, experience has shown, reconciles the claims of
convenience with the duties of good faith. The purchaser is
stimulated to employ vigilance and care in reference to the things
as to which they will secure him from injustice, while it affords
no shelter for bad faith on either part.
The intermediate cases -- those in which the parties have
advanced in the completion of their contract and are still willing
to abide by it, and there arises a real inability or a well founded
apprehension of danger, in that stage of their proceedings, to the
completion of the contract -- have created much embarrassment. Some
of these cases have been settled upon terms of compensation, in
which the court of chancery has exercised a doubtful jurisdiction,
in modifying the conditions of the contract according to the
supervening circumstances.
White v. Cuddon, 8 Cl. &
Fin. 766;
Thomas v. Dering, 1 Keen 729; Dart, Vend. &
P. 499,
et seq.
We have met with no case in which a vendee, in possession under
a contract of purchase or a deed with covenants, has been permitted
to reclaim the purchase money already paid, to be held as a
security for the completion or protection of his title. The Roman
law permitted the vendee to retain the purchase money in his hands
as security against an impending danger to the title, but denied a
suit for restitution, after payment, for that cause. "We must not,"
says Troplong,
"hastily break up a contract which the vendor may at last be
able to fulfill. There is no analogy between the case in which the
purchaser is allowed to retain the price as security and that in
which he would force the vendee to restore it for that purpose.
Between the right of retention and that of restitution of the price
there is the distance between the
statu quo and
rescission. Trop. de Vente, No. 614; Dalloz Juris., gen. tit. de
Vente, sec. 1170."
The decree of the circuit court does not direct the
restitution
Page 63 U. S. 329
of the purchase money to the vendee, nor its application by the
vendor to assure the attainment of the object of the contract, but
it sequestrates property of the vendor of four times the amount, to
be held or disposed of by the court in its discretion, to assure
the accomplishment of that object. In the case of
Milligan v.
Cooke, 16 Vesey 1-14, Lord Eldon made an order that the
purchaser should be compensated for the difference in the value
between the title contracted for and that exhibited, and if that
difference could not be ascertained, the master was directed to
settle the security to be given by the defendant as indemnity to
the purchaser against disturbance or eviction, and a similar order
was made in
Walker v. Barnes, 3 Mad. 247. But there were
conditions in the contract that authorized the order.
In
Balmorno v. Lumley, 1 V. & B. 224, and
Paton
v. Brebner, 1 Bligh. P.C. 42, the cases in which such a relief
could be granted appear to be limited to that class. In the latter
case, Lord Eldon said:
"This suit is in substance or effect allowing for
dissimilarities between English and Scotch proceedings in the
nature of a suit in a court of equity in England for the specific
performance of a contract. In such a suit, if it turns out that the
defendant cannot make a title to that which he has agreed to
convey, the court will not compel him to convey less, with
indemnity against the risk of eviction. The purchaser is left to
seek his remedy at law in damages for the breach of the
agreement."
In
Aylett v. Ashton, 1 M. & C. 309, the master of
the rolls, upon the authority of the cases cited, said:
"Parties no doubt may contract for a covenant of indemnity, but
if they do not, the court cannot compel a party to execute a
conveyance and to give an indemnity."
To the same effect is
Ridgway v. Gray, 1 Mac. & G.
109.
The appellee does not seek to rescind this contract, nor does he
disclose any imminent peril of disturbance or eviction as the
effect of the existence of the mortgage. The record shows that the
widow and heir of Notrebe, whose covenant of warranty has been
offered to the appellee, are either of them able to respond to the
damages that would be awarded upon
Page 63 U. S. 330
the breach of that covenant. The appellee had notice of this
encumbrance when he made and performed his agreement of purchase,
and did not stipulate for any additional indemnity to that
resulting from the covenant of warranty. We must therefore conclude
that he was willing to abide the settlement of the affairs of the
Real Estate Bank and to rely upon the protection afforded by the
covenants in his deed. We have no reason to suppose that the vendor
would have consented to deposit in the hands of a stranger four
times the value of the property he sold, as a security for the
fulfillment of his contract; nor can we superadd this to the other
obligations he has assumed.
Our opinion is that the decree of the district court is
erroneous, and must be reversed.
The deeds tendered seem to be in conformity with the stipulation
of the vendor in the agreement. The vendee may elect to take these,
or he may retain the agreement. In either case, his bill will
be
Dismissed with costs, and for this purpose the cause is
remanded.