#### Peter Powell et al. v. John E. Jeffries et al.

Error to Morgan.

1. Bona fide purchaser — -what constitutes. In order to constitute a bona fide purchaser he must parfwith somethir-g valuable at the time, or in some way place himself in a worse condition than he was before. It is not sufficient to take the property in consideration of a precedent debt. (a)

2. Same — when not. Semble. That if an estate, upon which there is an outstanding equitable encumbrance, be purchased on a. credit, and the payment of the purchase money secured, if the purchaser have notice of the prior equity, before he actually pays the money, he is not a bona fide purchaser, (b)

3. Instance. — A had an equitable title to certain town lots, upon which he executed a mortgage to B for $750, and another mortgage, reciting the former, to C, for $1295.66. Neither of these mortgages was paid; but subsequently A and B went to the person having the legal title, and who had agreed to convey the same to A, and whose bond A held, and surrendered the bond, and took a deed to B for the premises. B at the same time gave to A, for the alleged consideration of <$1000, a power of attorney to sell one of the lots for his own benefit. ' A sold this for $600, and B sold the residue for $1500. Afterwards a decree was rendered against a part of the premises for $192.17 on a mechanic’s lien, under which it was sold and bid in with money belonging to the estate of B': Held, that as B made the purchase of A, although he received the title from another, he was chargeable with notice of all encumbrances made by A on the premises, which were duly recorded, and consequently took , the *402legal title subject thereto, after satisfying his own private lien thereon : Held, also, that without the notice given by the recording act, B would not be a bona fide purchaser: Held, also, that B held the title in trust, and that he was accountable for the value of the whole of the premises conveyed to him, after deducting the prior encumbrances: Held, also, in this case, that as B was not called upon to account for the proceeds of the lots during his life, that the costs of the case should be taxed against C, who instituted the suit in chancery against B’s legal representatives, after his decease.

4. Recording law — notice of equitable title. Under the statute of Illinois, [*388] the recording of an equitable title to land operates as constructive notice to the same extent as the recording of a legal title to those who deal with the persons creating that equitable title or interest, or others claiming under him.

5.' Same — holder of legal title as trustee. Where a person obtains a legal title to a tract of land in fraud of a prior equitable title, he holds the estate in tiustforthe owner of the equitable title, and is accountable for the value of the property, if it be sold, whether he receives the proceeds or not. If it be disposed of to advantage, he is accountable for the proceeds ; if he squander it, he is accountable for its value, (c)

The decree in this cause was rendered at the February special term of the Morgan circuit court, 1843, by the Hon. SAMUEL D. Lockwood. The cause was commenced in the Adams circuit court and transferred to the Morgan circuit court, which court decreed that the representatives of Mason should account for the $1500 mentioned in the opinion of the court, deducting Mason’s mortgage and the amount paid for the removal of the mechanic’s lien and interest, but refused to compel them to account for the $600. The complainants brought the cause to this court by writ of error. The facts of the ease are stated in the opinion of the court.

J. A. McDougall, for the plaintiffs in error :

It is contended by the complainants that James Mason took the legal estate in the property in question, as trustee for the complainants, after his own claim should be satisfied, and that as trustee he, and after his decease, his estate, must account for the full amount realized, or which, with due diligence, might have been realized for the estate, minus the claim of Mason; and in support of this position they rely upon the following points :

First. The circumstances exhibited in testimony show actual notice to James Mason of the complainants’ equity.

Second. There was constructive notice by record of complainants’ equity, of which James Mason,.who purchased from Jeffries, was bound to take notice. R. L., title Conveyance, § 15. The English registry acts are essentially different from the provisions of our statute, and furnish no rule for the government of this court in the case at bar. 2 Bug. "Vend. 253; 4 Cruise’s Dig. 482, 488-9, 496, 501; Parkhist v. Alexander, 1 Johns. Oh. R. 394. Kent, Chancellor, holds that a recorded equitable mortgage is notice to a subsequent purchaser of the legal title. *403James v. Johnson, 6 Johns. Ch. R. 427. The record of an assignment of a mortgage is notice to a subsequent purchaser of the mortgage.

Third. Mason was not a bona fide purchaser, and as such entitled to notice, as he parted with no new consideration. Cod-dington v. Bay, 20 Johns. 637. A person taking a promissory note for a precedent debt is not a bona fide purchaser. Dickinson v. Tillinghast, 4 Paige 221-2. A person taking land for a precedent debt is not a bona fide purchaser whose estate will impair a previous equity or unrecorded conveyance.

Fourth. James Mason took and must hold as trustee for complainants. 1 Mad. Ch. § 363; Saund. on Uses [*389] and Trusts 217 ; Lambert v. Nanny, 2 Mun. 196; Hag-thrope v. Hook’s Administrators, 1 Gill & Johns. 271; Brown v. Lynch, 1 Paige 154-5; 2 Sug. Vend. 321.

Fifth. The court should hold the trustee strictly accountable for the entire estate which comes into his hands; and if he disposes of it, whether he receives any thing therefor or not, he should be held liable to the full extent of its value. Saund. on Uses and Trusts 246; 1 Cruise’s Dig. 496 ,- Ringold v. Ringold, 1 Harr. & Gill 25; White v. Prentiss, 3 Monroe 505; Smith v. Smith, 4 Johns. Ch. R. 281-3; Mumford v. Murray, 6 Johns. Ch. R. 15, 452; Hester v. Hester, Dev. Eq. 328; Lupton v. White, 15 Yesey 432; Attorney Generals. Fullerton, 22 Vesey & Beames 263.

A. Williams and William Thomas, for the defendants in error.

(a)

Cases Citing Text. Creditor, who, to secure debt, takes title by purchase from debtor’s fraudulent grantee, takes only such title as debtor had, and other creditors may assail whole transaction for fraud. Waggoner v. Cooley, 17 Ill. 239, 245.

Debtor in failing circumstances has not right to transfer his assets to agent with power to prefer creditors. Waggoner v. Cooley, 17 Ill. 239, 245.

Extension of time for payment of debt is valid consideration to support contract. Worcester National Bank v. Cheeney, 87 Ill. 602, 608.

(b)

Possession of land isnotice of rights, legal and equitable, of possessor. D’Wolf v. Pratt, 42 Ill. 198, 211; Franz v. Orton, 75 Ill. 100, 105.

(c)

If vendor resells land in violation of his contract he will be treated as trus- • tee of proceeds of second sale for benefit of first vendee. Bourland v. Peoria County, 16 Ill. 538, 546.

CatoN, Justice,

delivered the opinion of the court: (1) Jef-fries, having an equitable title to three lots of ground in the town of Quincy, on the 26th of April, 1831, executed two mortgages on them ; one to Mason, for $750, payable in one year, a.nd one to the' complainants for $1295.66, payable in three equal installments, of three, six, and nine months. This last mortgage recited and was subject to the former. Neither of these mortgages was paid, and on the 7th of March, 1833, Jeffries and Mason went to the county commissioners of Adams county, whose bonds for a deed of these premises Jeffries held, and delivered up these bonds, and procured a deed of the premises direct to Mason. At the same time Mason gave to Jeffries, for the alleged consideration of $1000, a power of attorney to sell one of the lots, for his own benefit. Jeffries sold this lot, in 1833, for $600, to Tilson, and on the 1st of May; 1834, Mason sold the balance of the premises for $1500. Afterwards a decree was obtained against a part of the premises for $192.17, on a mechanic’s lien, under which they were sold and bid in with money belonging to the estate of Mason. *404This lien was an encumbrance on the premises at the time the mortgages were executed.

The first enquiry is to’ascertain how far Mason, when he acquired the title, took it subject to the claim of the complainants. The complainants’ mortgage was duly acknowledged and properly recorded on the 20th of May, 1831.

We have already decided in the case of Doyle et al. v. Teas et al. (Ante 202), that under the recording act, the registry of an equitable title to land operates as constructive notice to the same extent as the recording the legal title, to those who deal [*390] with the person creating that equitable title or interest, or others claiming under him ; and as Mason made the purchase of Jeffries, although he received the title from the county commissioners, he was chargeable with notice of all in-cumbrances made by Jeffries on the premises, which were duly recorded, and consequently took the legal title subject thereto, after satisfying his own prior lieii. But it was urged, that having a mortgage upon the whole premises, by acquiring the legal title, his mortgage was merged in that title, which thereby became complete. Pro tanto this is true. By acquiring the legal title, his mortgage ceased, by being absorbed in the higher title, which was united with it in the same person But not so the other encumbrance, over which he had no control. To do this he should have proceeded to obtain satisfaction of his mortgage by legal proceedings, so that subsequent encumbrances could have had an opportunity to redeem, and thus obtain the benefit of the full value of the premises, to secure the payment of these debts. Had he, under such proceedings, acquired the legal-title, the complainants’ lien might have been cut off.

But even without this constructive notice, I think it is clear that Mason was not a bona fide purchaser. It is not pretended that he paid any new consideration for this purchase. In order to constitute a bona fide purchaser, he must part with something valuable at the time, or in some way place himself in a worse condition than he was before. It is not sufficient if he took the property in consideration of a precedent debt. So also if he purchase an estate on a credit, and secure the purchase money, and at any time before he actually pay the money, lias notice of the prior equity or lien, -he is .not a bona fide purchaser. 4 Paige 221-2 ; 20 Johns. 637.

Upon no principle of law, then, could Mason claim to hold the legal title, discharged from the complainants’ encumbrance. He took it aware of the existence of this mortgage, and in payment of a precedent debt of a little more than one third its value, which was already well secured on the premises. To hold that the legal title passed, discharged from this encumbrance, would, in my *405judgment, be countenancing and giving effect, to say the least, to a legal fraud.

In Dickinson v. Tillinghast, above referred to, the chancellor says: “ If a person has an equitable title to, or an equitable lien upon, real estate, a subsequent purchaser, who obtains a conveyance of the legal estate, with notice of that equity, cannot in conscience retain such legal title, as he has no equity united with it.” Although it might be sufficient to stop here for the purpose of charging the legal title, in the hands of Mason, with this mortgage, yet the circumstances of the case carry us still farther. In March, 1833, we find these premises encumbered with $2380, when they were worth $2000. The amount of Mason’s encumbrance was then $788.60, and without any other consideration, we see the legal estate conveyed, by Jeffries’ direction, directly [* 391] to him, without passing through the hands of Jeffries at all, and at the same time, he gives to Jeffries a power of attorney to sell a part of the premises, for his own benefit, for the pretended consideration of $1000, when, in fact, as we learn from the masters’ report, no consideration passed either way. Mason sold the part that he retained for $1500, thus realizing some $700 for assisting Jeffries to practice a manifest fraud on the complainant. It is the duty of the court to see that this fraud shall not be allowed to prevail. Mason by acquiring the legal title, in fraud of the owner of theprior equity was bound to hold it in trust for his benefit, (2 Mun. 196 ; 1 Gill & Johns.' 271.) and, as such trustee, must account for its value or proceeds, after deducting the amount of the prior encumbrances. It is a matter of no importance to en-quire whether Mason ever received the $600, for which Jeffries sold one of the lots, for he is equally responsible, whether he allowed Jeffries to retain the money in fraud of his cestui que trust, or received and used it himself. He is responsible for the loss, and must reimburse it. Although he may have made himself trustee by an act of fraud, the court will compel him to act with fidelity and circumspection, by holding him responsible for any loss for not doing so. Saund. on Uses and Trusts 246 ; 1 Comyn’s Dig. 496, §§ 39, 41; 1 Har & Gill 11, 25. The question is not what the trustee has made, unless the cestui que trust chooses so to consider it, but what the latter has lost. If the trust estate is disposed of to advantage, he must account for the proceeds; if he squander it, he is responsible for its value. In this case the property was sold for about its fair value, as appears by the masters’ report; and for the amount of these sales the complainant is entitled to an account, after deducting the amount of' Mason’s mortgage, and of the lien which was discharged from his estate; consequently the decree of the court below will have to be reversed, and a decree will be. entered here upon the following principles:

*406Interest will be reckoned on $788.60, the amount of Mason's mortgage, on the 3d of March, 1883, from that date till the 23d of May, 1834, the time that he sold the premises. To that will be added $192.17, the amount of the mechanic’s lien, which will be deducted from $2100, the amount for which the premises sold, and on the balance interest will be reckoned up to this time, for which a decree will be entered in favor of the complainants, against the estate of Mason, and a decree will be, entered against Jeffries for the amount due on the complainants’ mortgage. Any money paid by, or collected under, either of said decrees, shall apply in satisfaction of both, to the amount of such payment or collection.

As this suit was not commenced till after the death of Mason, and as he was not called on for an account, during his life time, I think it right that his estate should not be charged with [* 392] the costs of this suit, all of which will be decreed against Jeffries. As the complainants are satisfied to take a decree against the estate, of Mason, I have not thought it necessary to enquire whether the land is chargeable in the hands of the grantees of Mason, who are made defendants.

Decree reversed.

(1)

Wilson, Chief Justice, and Lockwood, Justice, did not sit in this cause.