Sumner v. Waugh (56 Ill. 531, 1869)

Mr. Chief Justice Breese

delivered the opinion of the Court:

This was a bill, in chancery, brought originally to the circuit court of Mercer county, and by change of venue taken to the Peoria circuit court, the object of which was, to foreclose a mortgage alleged to have been executed by John M. Waugh and wife and Henry B. Ellis and wife to Benjamin T. Sisson, and by him assigned to the complainants. Waugh and Ellis and Sisson were made parties defendant, together with Thomas B. Ellis, and others named, on the allegation that they claimed to have some interest in the lands described in the mortgage, as purchasers or otherwise, and that the interest accrued subsequent to the execution of the mortgage, and that such interest was subject to the rights and interests of the complainants.

The mortgage was alleged to have been executed on the 15th of February, 1858, to secure the payment of $9,380.58, payable on or before the 30th day of July, 1863, with interest annually, at the rate of ten per centum per annum, and to have been assigned to complainants on the 8th day of February, 1863, by an assignment executed and delivered on that day.

All the defendants, except Thomas B. Ellis and Henry B. Ellis, were defaulted. In their answer they give a history of the transaction out of which the mortgage arose.

It would appear that John M. Waugh was the owner of certain lands at Bichland Grove, in the county of Mercer, including the premises mentioned in the mortgage, and arranged with Sisson, his son-in-law, to erect a steam flouring mill upon it, Waugh to own one-third and Sisson two-thirds. Before the mill was completed, Waugh conveyed to Henry B. Ellis, his brother-in-law and son-in-law also, an undivided interest in the lands; thereupon, Waugh and H. B. Ellis executed the mortgage in question, to Sisson, to secure him for the money he had advanced in the erection of the mill, which was the entire interest of Sisson in the property. While the mill was in the course of erection, Thomas B. Ellis, also a brother-in-law of Waugh and the brother of Henry B., sold to Waugh and Sisson a large amount of machinery and fixtures for the mill, worth about $6,000, and afterward, he sold to Waugh and Ellis machinery amounting to about $2,000. Waugh was also engaged in retailing dry goods, and he and Henry B. had became involved in debt, not only to Thomas B. Ellis, but to others, and to secure Thomas B., they proposed to sell to him the store, mill and lands attached thereto, to which Thomas assented, taking a deed therefor on the 5th of May, 1858, for the sum of $26,417.65, subject to the mortgage of Sisson, described in complainants’ bill; and on the same day he purchased their entire stock of dry goods, groceries, horses, mules, etc., at a valuation of $4,700, taking a bill of sale of the same, and, after deducting his own claim and Sisson’s mortgage, a balance was found against Thomas B. of $14,989.54, to secure which he executed to them notes and a mortgage on the land purchased, except five acres thereof.

It appears Thomas B. run the mill some time, and then, on the 30th of September, of the same year, sold out, as he says, to Waugh, Sisson and one John B. Bathbun, also a brother-in-law of Waugh, all the property, real, personal and mixed, on the terms stated in the following contract of that date, signed by Sisson and Bathbun, of the second part, and Thomas B. Ellis, of the first part:

“ Articles of agreement made and entered into this thirtieth day of September, A. D. one thousand eight hundred and fifty eight, by and between Thomas B. Ellis, of Richland Grove, Mercer county, and State of Illinois, of the first part, and Benjamin T. Sisson & John B. Rathbun, of the same place, of the second part.

“ Witnesseth, that the said party of the first part, for himself, his executors, administrators, or assigns, agrees to sell, release and convey, to the said parties of the second part, all his paid-in interest in the Richland Grove Steam Mill, store, and lands attached to the same, amounting to ten thousand dollars, more or less, as shall appear from authenticated bills rendered at the final closing up of this contract, which shall take place within three weeks from this date, when the said party of the first part shall make to the said parties of the second part, their heirs, executors, administrators or assigns, a good and sufficient deed of conveyance of all the lands, mills, house, and all other appurtenances of whatsoever kind, as set forth in a certain mortgage given by the said party of the first part to John M. Waugh & Henry B. Ellis, dated June 5th, 1858, reference to which will fully explain boundaries, conditions, etc.; also for a certain mortgage given to John M. Waugh by said party of the first part, for the payment of eleven hundred and forty dollars, on five acres, and appurtenances, out of the south-east corner of the south-east quarter of the south-west quarter of section Ho. (16) sixteen, township fifteen (15), one (1) west of the fourth (4) principal meridian, and to yield up to the said parties, or their authorized agents, all of the aforesaid premises peaceably, at the signing of this article, and the said parties of the second part agree to and with the said party of the first part, that they will make over the balance, after deducting the amount held by Benjamin T. Sisson, $9,280.00, and the said ten thousand dollars, more or less, paid in by the said party of the first part, and sold to John B. Rathbun (the said John B. Rathbun agreeing to pay to the said party of the first part, the said sum of ten thousand dollars at the expiration of seven years, secured by mortgage on the premises sold, and interest at ten per cent per annum; at the end of three years the said Bathbun agrees to pay the interest then due, if convenient, if not, to give additional security for that amount, and so on annually until the expiration of the said seven years), by mortgage on the premises in the same manner and on the same or like terms as the said parties of second part may agree with the said John M. Waugh, and it is further agreed, that all the parties named in this article shall deliver up all bonds, mortgages, deeds, and receipts and papers of whatsoever kind, relating to their contract, so soon as the same is lawfully canceled. The said parties of the second part agree to assume the payment of the following bills of goods bought by the said party of the first part in St. Louis, viz.: Memick & Scudder, grocery bill, of $311.55, at 30 and 60 days, dated September 2d, 1858, Jacob S. Merrell’s job bill of $43.95, and Fife, Hub-hard & Vogel’s shoe bill, $242.30, and bill of dry goods bought of Campbell (bill not rendered yet), at six months.

“ And it is further agreed that said mill shall be kept insured by the said parties of the second part, to commence as soon as a policy can be obtained, and kept in good running order, usual wear and tear and elements excepted, and for the faithful performance of all the foregoing articles of agreement, the said parties severally bind themselves each in the penal sum of ten thousand dollars lawful money of the United States. In testimony whereof the said parties hereunto set their hands and seals the day and year first above written.”

It is alleged by T. B. Ellis that, by some arrangement between Waugh, Sisson and Bathbun, Waugh was not to, and did not, sign the contract as a party to it, though he was really a party, and so understood by all.

It is also alleged that, upon this contract being made, Waugh, Sisson and Bathbun went into possession of all the property, receiving the profits of it, selling the merchandise, and running the mill, and have ever since enjoyed the same, but refused to comply with their contract. #

It is also alleged that, on the 26th of March, 1861, he, Thomas B. Ellis, filed a bill of complaint against Waugh, Sis-son and Rathbun, in the Mercer circuit court, for a specific performance of this contract, which bill was pending at the time complainants took the assignment from Sisson, of the mortgage. The prayer of the bill, among other matters, was that Sisson should be compelled to release this mortgage, and surrender the notes therein described, to be canceled. It is. alleged that Sisson had been summoned on that day to appear and answer the bill, and that the summons was served upon him, and that Waugh, Sisson and Rathbun had filed their separate answers to the bill, and the cause brought to issue, and was still pending.

It is claimed by T. B. Ellis, that the mortgage, only, having been assigned to the complainants, his right was equitable only, but they, T. B. Ellis and H. B. Ellis, had an equitable right to have the same released prior to the assignment to complainants. They, the complainants, took the assignment subject to the rights of Ellis; that, as they took the assignment pending the bill, they took it subject to any decree which might be rendered against Sisson, and it is alleged complainants had constructive notice of Ellis’ equities, by the pendency of this bill.

Thomas B. Ellis also, after replication to his answer, filed a cross-bill against the complainants, setting up the same facts as are contained in his answer, and alleging that he was always willing to comply with the contract on his part, and use all the means in his power to induce Waugh, Sisson and Rathbun to settle with him within the time fixed in the contract, and repeatedly offered to, and did, render authenticated bills, as required by the contract; that he tendered a deed of the property to Sisson and Rathbun, duly executed, within the time required by the contract, and that he filed a copy of the deed with his bill. He alleged the transfer of the mortgage by Sis-son to complainants, the defendants in the cross-bill, was fraudulent, and that they knew, before the assignment, of his rights in the premises. The bill prayed that the defendant be barred from a foreclosure of the mortgage, and be required to satisfy the same upon the record, and an answer required, under oath.

The complainants answered under oath, not admitting any knowledge of any of the facts stated in the hill, and denied all the allegations thereof, and denied all information, save hy the cross-bill. They admit they claimed the mortgage in virtue of the assignment by Sisson, of February 8, 1862 ; that they had filed their bill .to foreclose the same, and deny that the assignment was fraudulent in any respect, and that they had no knowledge of the contract set up in the bill, nor any information or belief about it, save as informed by the cross-bill. A replication was put in to this answer.

The court, on the bill of complainants, decreed in favor of the defendants, and in their favor as complainants in the cross-bill, and dismissing both bills. To reverse this decree, dismissing complainants’ bill of foreclosure, they appeal to this court.

Much testimony was taken on the hearing, the principal and most important part of it that of the parties defendant, and of complainants and defendants in the bill for a specific performance of the contract of September 30,1858, which it is unnecessary to detail. The points made by appellants are alone necessary to be considered.

The first point made by appellants is, that a mortgage security, valid in its inception, and free from fraud, in the hands of an assignee, is good against a latent equity residing in a third party, no matter when the latent equity existed, and the assignee will be protected by a court of equity, and in this connection they insist that the pendency of a suit is not notice, unless the property is described so as to be unmistakable, and the prosecution of the suit must be active and vigilant, and reference is made to Olds v. Cummings, 31 Ill. 192; Worden v. Williams, 24 id. 74, and Rodgers v. Kavanaugh, id. 584.

The mortgage in question was assigned by an instrument in writing, .acknowledged before a notary, and, not being assignable by the common law, it being a chose in action, or by any ÜW