After a cause in equity has been set down for hearing on bill
and answer, it is too late to move to dismiss, under Equity Rule
66, for want of replication.
A bill in equity in Indiana which avers that a deed is void on
its face, and an answer which does not deny the averment, will
support the jurisdiction of the circuit court of the United States
in that district to quiet the title of the complainant as against
the deed.
Holland v. Challen, 110 U. S.
15, affirmed.
The fact that a national bank, at a judgment sale of real estate
mortgaged to it, purchases the mortgaged property and also other
property not secured by the mortgage does not invalidate the title
to the mortgaged property which § 5137 Rev.Stat. authorizes the
bank to acquire.
This was a bill in equity to quiet title and restrain waste,
filed by the appellee, First National Bank of Crawfordsville,
Indiana, against the appellant, Harris Reynolds.
The bill alleged in substance that on August 18, 1875, Reynolds
was indebted to the bank in the sum of $7,000, which was evidenced
by his note of that date and amount, with Isaac M. Vance and James
H. Watson as sureties, and that on the day just mentioned, in order
to indemnify the sureties, Reynolds executed a mortgage on certain
real estate; that on September 17, 1877, Reynolds executed to the
bank another mortgage on the same lands to secure an additional sum
of $3,000 which he at that date owed the bank; that on August 30,
1878, Reynolds was adjudged a bankrupt, and John W. Baird was
appointed assignee of his estate; that on April 18, 1879, the
assignee reported to the bankruptcy court that no assets of the
bankrupt had come to his hands and no debts been proven against his
estate, whereupon the estate was settled, and both the assignee and
the bankrupt discharged; that before the discharge of the assignee,
to-wit, on April 11, 1879, Reynolds stated to the bank that no
claims had been proven against his estate, and that the register in
bankruptcy
Page 112 U. S. 406
had given him a writing showing that fact, and also showing that
the title to the real estate covered by the mortgage to the bank
had revested in him; that, relying upon this statement, the bank
agreed with Reynolds, Vance, and Watson that it would release the
two latter from their liability on the note for $7,000, in
consideration of which Vance and Watson agreed to pay the bank a
certain sum of money and assign to it the mortgage executed to them
by Reynolds for their indemnity, and Reynolds agreed to convey the
mortgaged property to the bank, but was to be allowed to retain
possession thereof until March 1, 1880, and that these agreements
were executed; that afterwards, the bank purchased a certificate of
purchase at sheriff's sale of a certain part of the mortgaged
premises which had been sold upon a judgment senior to the mortgage
to the bank, and at the expiration of the time for redemption, took
a sheriff's deed for the land described therein; that the bank was
compelled to pay $1,286.60 in discharge of a school fund mortgage
upon the real estate mortgaged to it; that the bank purchased from
Ann Smith a decree against said land, and took an assignment
thereof to itself; that
"said purchases and assignments were made upon the faith of the
agreement and deed of Reynolds, and for the purpose of saving
expense of foreclosing said liens, and that the amount of liens so
held . . . was fully equal to the value of said real estate at the
time of said agreement;"
that Reynolds, for the purpose of annoying complainant and
casting a cloud upon its title and delaying it in getting
possession, claimed that after the execution of the deed to the
bank, Baird, the assignee, executed to him a quitclaim deed for the
same real estate, under which he claimed to be the owner; that this
deed was wholly inoperative, null, and void, because the interest
which it purported to convey never had passed from Reynolds and
because it was made without any authority from the bankruptcy
court, and because it was executed by a party out of possession,
and as to whom there was an adverse possession.
It was averred in an amendment to the bill that the deed from
Baird, the assignee, to Reynolds was executed after the latter had
made his deed to the bank; that Reynolds had
Page 112 U. S. 407
caused the deed of the assignee to himself to be recorded, and
that under it, he was asserting a title paramount to that of the
bank and was threatening to commit waste and was insolvent. The
prayer of the bill was for a decree quieting the title of the bank
and enjoining waste by Reynolds.
The answer of Reynolds was filed September 20, 1880. It admitted
that he was indebted to the bank, as charged in the bill, in the
sum of $7,000, for which Vance and Watson were his sureties, and
that he had executed to them the indemnifying mortgage mentioned in
the bill. It admitted the averments in respect to his bankruptcy,
but denied that he had made to the bank the representations that
the assignee in bankruptcy had given him a statement in writing
showing that no debts had been proven against his estate in
bankruptcy, and that the title to his real estate had been revested
in him. The answer averred that prior to the execution of the deed
by Reynolds to the bank, the latter proposed to him that it would
pay off all his debts which were liens upon his real estate, and
permit him to retain possession thereof until March 1, 1880, on
condition that Reynolds would convey to the bank by quitclaim deed
the mortgaged premises, and upon the further condition that Vance
and Watson would convey to the bank, by deed of warranty, 200 acres
of land owned by them, and that this proposition was accepted; that
the consideration for the said contract between Reynolds, Watson,
Vance, and the bank, pursuant to which he executed the quitclaim
deed to the bank, was this undertaking and agreement of the bank;
that Vance and Watson complied on their part with the agreement and
conveyed, with covenants of warranty to the bank 200 acres of land
owned by them; that it was upon the faith of this agreement and
none other that the quitclaim deed was executed by Reynolds; that
when this agreement was entered into, the estate in bankruptcy of
Reynolds was unsettled, as the bank knew, and that the purchase of
the sheriff's certificates, and other purchases made and
assignments taken by the bank, were in violation of the agreement
under which Reynolds made the deed to the bank.
The answer admitted the execution and delivery of the deed
Page 112 U. S. 408
from Baird, the assignee, to Reynolds, and that Reynolds was
claiming whatever title the deed conferred on him, and denied that
he had threatened to commit waste on the premises.
On May 3, 1881, the cause was set down for hearing on May 11 on
bill and answer by counsel for the bank, and of this the defendant
had immediate notice. On the day fixed for the hearing, the counsel
for Reynolds moved the court to dismiss the bill for failure of the
complainant to except to the answer or to file replication
thereto.
The motion to dismiss the bill was overruled. The cause was then
heard upon bill and answer, and the court found that the equity of
the case was with the complainant; that the material averments of
the bill, as amended, were true, except the averment as to waste
and threatened waste; that the various instruments set forth in the
bill had been executed as charged; that Baird, the assignee in
bankruptcy, had executed the deed to Reynolds as charged; that this
deed was "wholly inoperative, null, and void," and that the
assertion of title thereunder cast a cloud upon complainant's
title, and that the complainant was the owner of and entitled to
the possession of the real estate in controversy. A decree was
entered on these findings quieting complainant's title, and
declaring the deed from Baird to Reynolds void. From this decree
Reynolds appealed.
MR. JUSTICE WOODS delivered the opinion of the Court. He stated
the facts in the foregoing language, and continued:
The first complaint of the appellant is that the court overruled
his motion to dismiss the bill, the appellee having failed to file
a replication to the answer within the time prescribed by the
equity rules. The motion was properly denied. The sixty-sixth
equity rule provides that
"Whenever the answer of the defendant shall not be excepted to
or shall be adjudged or
Page 112 U. S. 409
deemed insufficient, the plaintiff shall file the general
replication thereto on or before the next succeeding rule day
thereof. . . . If the plaintiff shall omit or refuse to file such
replication within the prescribed period, the defendant shall be
entitled to an order as of course for a dismissal of the suit, and
the suit shall thereupon stand dismissed unless the court, or a
judge thereof, shall, upon motion for cause shown, allow a
replication to be filed
nunc pro tunc, the plaintiff
submitting, to speed the cause, and to such other terms as may be
directed."
The rule thus places it in the defendant's power to compel the
complainant to put the cause at issue or to go out of court. The
complainant always has the option of setting the case down for
hearing on bill and answer, instead of filing a replication, and if
the defendant neglects to enter the order for the dismissal of the
suit for want of replication until after the cause has been set
down for hearing on bill and answer, a motion by the defendant to
dismiss the suit for want of replication is incongruous and
untimely. On setting the cause down for hearing on bill and answer,
the case is put at issue, the answer becomes evidence (Equity Rule
41, clause 2), and the only evidence the defendant needs, for it
must be taken as true in all respects.
Brinkerhoff v.
Brown, 7 Johns.Ch. 217;
Grosvenor v. Cartwright, 2
Johns.Ch. 21;
Barker v. Wyld, 1 Vernon 140;
Perkins v.
Nichols, 11 Allen 542;
Dale v. McEvers, 2 Cowen 18.
There is therefore no necessity for a replication or for the taking
of testimony. The setting the case down for hearing on bill and
answer is in effect a submission of the cause to the court by the
complainant on the contention that he is entitled to the decree
prayed for in his bill upon the admissions and notwithstanding the
denials of the answer. It is plain, therefore, that after the cause
had been so set down, the motion of defendant to dismiss the suit
for want of the timely filing of the replication came too late and
was rightly overruled.
The appellant next complains of the decree rendered by the
circuit court, and his first objection is that the court had no
jurisdiction to quiet the title of the appellee, as against a
deed
Page 112 U. S. 410
averred by the bill, and not denied by the answer, to be void on
its face. The contention is that a deed void on its face is not a
cloud upon the title, and a claim of title under it is no ground
for the interference of a court of equity. This objection is not
tenable. It may be conceded that the legislature of a state cannot
directly enlarge the equitable jurisdiction of the circuit courts
of the United States. Nevertheless an enlargement of equitable
rights may be administered by the circuit courts as well as by the
courts of the states.
Broderick's
Will, 21 Wall. 503,
88 U. S. 520.
And although a state law cannot give jurisdiction to any federal
court, yet it may give a substantial right of such a character that
when there is no impediment arising from the residence of the
parties, the right may be enforced in the proper federal tribunal,
whether it be a court of equity, admiralty, or of common law.
Ex Parte
McNeil, 13 Wall. 236,
80 U. S.
243.
While, therefore, the courts of equity may have generally
adopted the rule that a deed void upon its face does not cast a
cloud upon the title which a court of equity would undertake to
remove, we may yet look to the legislation of the state in which
the court sits to ascertain what constitutes a cloud upon the
title, and what the state laws declare to be such, the courts of
the United States sitting in equity have jurisdiction to remove.
This was expressly held in the case of
Clark v.
Smith, 13 Pet. 195,
38 U. S. 202,
where it was said by this Court:
"Kentucky has the undoubted power to regulate and protect
individual rights to her soil, and to declare what shall form a
cloud on titles, and, having so declared, the courts of the United
States, by removing such clouds, are only applying an old practice
to a new equity created by the legislature. . . ."
The State of Indiana, where the present case arose, has declared
by statute what kind of a claim against real estate is such a cloud
upon the title as will support a suit to remove it. Section 1070 of
the Revised Statutes of Indiana, of the year 1881, provides as
follows:
"An action may be brought by any person, either in or out of
possession, or by anyone having an interest in remainder or
reversion, against another who claims title to or interest in real
property adverse to him, although the defendant may not be
Page 112 U. S. 411
in possession thereof, for the purpose of determining and
quieting the question of title."
This act confers upon anyone against whom another, whether in or
out of possession, claims an adverse title or interest in real
estate the substantial right of having the disputed title settled
by action in the courts.
Under this statute, it has been decided by the Supreme Court of
Indiana that it is sufficient to aver that the defendant claims
some interest or title, or pretended interest or title, adverse to
complainant, without stating what the title is.
Marot v.
Germania Building Association, 54 Ind. 37;
Jeffersonville
&c. Railroad Co. v. Oyler, 60 Ind. 383.
The bill of complainant in this case complies with this rule by
averring that "said Reynolds is, under his deed [from Baird, the
assignee] claiming and asserting title paramount to the title of
this complainant," and the answer of the defendant admits that,
under the deed executed to him by Baird, he is claiming whatever
title to said lands the same confers on him. The question whether,
under such a statute as that of Indiana and under the facts stated,
the circuit court had jurisdiction to render the decree complained
of has been in effect decided in the affirmative by this Court in
the case of
Holland v. Challen, 110 U. S.
15.
In that case, a statute of Nebraska was under review, which
provided that
"An action may be brought and prosecuted to final decree by any
person, whether in actual possession or not, claiming title to real
estate against any person who claims an adverse interest therein
for the purpose of determining such interest and quieting the
title."
The Court, speaking by MR. JUSTICE FIELD, declared in substance
that this statute dispensed with the general rule of courts of
equity that in order to maintain a bill to quiet title, it was
necessary that the party should be in possession and, in most
cases, that his title should be established at law or founded on
undisputed evidence or long continued possession. If the equity
courts of the United States in Nebraska could dispense with these
well established rules of equity, and administer
Page 112 U. S. 412
the rights conferred by this statute, it is not open to question
that in this case the circuit court could disregard a similar rule
and entertain jurisdiction of the appellee's case and accord to him
the rights conferred by the statute law even though the deed under
which the appellant claimed was void on its face.
As the same statute authorizes the court to take cognizance of
the case even when the title of defendant amounts to more than a
mere cloud, and applies in every case when the defendant claims an
adverse interest in or title to the property in controversy, it is
clear that the assignment of error under consideration has no
support.
It is next objected to the decree of the circuit court that the
appellee's title was itself doubtful, and the bill should for that
reason have been dismissed; but it is apparent that the appellant
was entitled in equity to all of his estate in bankruptcy not
required for the payment of his debts. This estate, as appears by
the averments of the bill not denied by the answer, was subject to
mortgage and other liens held by the appellee equal in amount to
its full value. When, therefore, no debts having been proven
against his estate, the appellant was discharged, and his assignee
in bankruptcy had fully settled the estate, the quitclaim deed
executed by the former to the appellee vested in the latter a clear
equitable title to the premises in controversy, and this was
sufficient, under the Indiana statute, to justify the relief prayed
for in the bill.
The appellant next insists that the appellee, being a national
bank, had no power, under the act establishing national banks, to
take a conveyance of the 200-acre tract of land from Vance and
Watson and that, as such a conveyance formed a part of the
agreement by which the appellee acquired title to the land conveyed
to it by the appellant, the title to the latter tract is void.
The National Banking Law, Revised Statutes § 5137, provides that
a national banking association may purchase such real estate as
shall be mortgaged to it in good faith by way of security for debts
previously contracted. The power to purchase the real estate in
dispute was therefore clearly conferred
Page 112 U. S. 413
by the statute. The fact that in order to secure the same debt
it purchased other real estate not mortgaged to it cannot affect
the title to the land which it was authorized to purchase, but if
there was any force in this objection to the title, it could not be
raised by the debtor, for where a corporation is incompetent by its
charter to take a title to real estate, a conveyance to it is not
void, but only voidable. The sovereign alone can object. It is
valid until assailed in a direct proceeding instituted for that
purpose.
National Bank v. Matthews, 98 U. S.
621,
98 U. S. 628;
National Bank v. Whitney, 103 U. S.
99;
Swope v. Leffingwell, 105 U. S.
3.
The appellant insists further that the appellee did not perform
that part of his contract by which he agreed to pay off the debts
of appellant which were a lien upon the property in question; that
the purchase of the sheriff's certificate, and the purchase and
transfer to himself of the decree in favor of Ann Smith, were not
payment of the debts. This is an objection to the form, rather than
the substance, of the transaction. The debts, so far as the
original creditors are concerned, were satisfied, and this,
together with their assignment to the appellee, who was under a
contract with the appellant to pay them, was in substance and
effect a payment. There is no averment that the appellee had any
purpose to attempt their enforcement against the appellant, and if
such attempt should be made, it could not, in the face of the
contract, succeed.
We think that the decree of the circuit court is sustained by
the admissions of the answer, and that there is no error in the
record.
Decree affirmed.
