Case ID: ohio-st_36/html/0442-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Boynton, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Elizabeth McQuade v. Sylvester H. Rosecrans.
    In an action to foreclose a mortgage, the defense was setup, that the mortgage was given to secure double the amount of the money loaned thereon by the mortgagee, with intent to defraud the creditors of the mortgagor. Held,
    
    1. That the consideration of said mortgage being entire and illegal, a court of equity will not aid its foreclosure.
    2. That the defense of illegality of consideration in such case, may be made by the mortgagor or by any person succeeding to his interest ; hence, it is error for the court to exclude testimony offered by the defendant to establish such defense.
    Error to the District Court of Scioto County.
    . The action below was brought by Sylvester H. Rosecrans against Elizabeth McQuade and John McQuade, administrator 
      de bonis non of Hugh Reiley, to foreclose two mortgages executed by said Reiley and his wife Elizabeth, now the plaintiff Elizabeth McQuade, to secure the payment of certain promissory notes, amounting in the aggregate .to $1,600, executed by Hugh Reiley and delivered to Emanuel Thinpoint, the defendant’s testator, in the years 1857 and 1858. Said Elizabeth was sole heir of the said Hugh Reiley. The answer averred, among other things, that at the time said Hugh Reiley executed the said notes and mortgages, he was in embarrassed circumstances, and involved in debt beyond his means to pay, without resort to the real estate mortgaged, and that said mortgages were executed by said Reiley and received by said Thinpoint in double the amount actually loaned, for the purpose of placing the property mortgaged beyond the reach of the creditors of Reiley. The reply admitted that the consideration of said notes secured by said mortgages to the amount of $800 was never paid to said Reiley by said Thinpoint, but was a trust fund created by said Reiley in favor of said Elizabeth, who after the death of said Hugh Reiley and before said suit was commenced, intermarried with J ohn McQuade.' The reply denied that said conveyances were made with intent to defraud the creditors of said Hugh Reiley. On the trial in the district coiirt, to which the cause had been appealed, the plaintiffs in error called as a witness Cornelius McCoy, who stated that he was acquainted with Hugh Reiley in his lifetime, the former husband of the said Elizabeth McQuade, and counsel for defendants therein propounded to the witness the following question, viz.:
    “ What, if anything, do you know as to the pecuniary circumstances of Hugh Reiley, prior to his death ?”
    To which question the plaintiff, by 1ns counsel, objected, and the court sustained said objection, and the witness was not permitted to answer said question.
    Counsel for defendants then proposed and offered to prove by said witness, and other witnesses, that at the time of the execution of said notes and mortgages sued upon, the same were given for just double the amount of money actually loaned. That the said Hugh Reiley was being sued by various creditors and was in embarrassed circumstances and wholly insolvent, which facts were well known to both said Hugh Reiley and the said Emanuel Thinpoint, and that the object on the part of both said Reiley and Thinpoint in taking the notes and mortgages for double the amount loaned, was to cover up and pi’otect said real, estate so mortgaged from being levied on and. Sold in payment of the debts due to said creditors; that, in fact, the giving and taking of the said notes and mortgages did operate as a fraud on said creditors ; but the court ruled that said evidence and each part thereof was incompetent; that the contract, as between the said Emanuel Thinpoint and Hugh Reiley must be regarded as executed, and that the defendant, Elizabeth Reiley, was not in a position to raise the question of fraud upon the creditors of the said Hugh Reiley, and therefore excluded the testimony offered. Judgment having been given for the plaintiff below, the exclusion of said testimony is here assigned as error.
    
      W. A. Dutchins, B. W. Evans, and Duncan Livingstone, for plaintiffs in error :
    Where a party aids another in an illegal object, he shall not be assisted by the law, nor where contracts contrary to sound morals, public policy, or forbidden by law, are entered into, will they be executed by courts of justice. Spurgeon v. McElwain, 6 Ohio, 442; B. & P. 551; 1 M. & S. 593 ; Piatt v. St. Clair, 6 Ohio. 227; 1 Ohio St. 262 ; 6 Johns. Ch. 117; 3 Dana, 540 ; Bolt v. Rodgers, 3 Paige, 157; Roll v. Raguet, 4 Ohio, 400; Bradford v. Byers, 17 Ohio St. 396; Raguet v. Roll, 7 Ohio, pt. 1, 77. The same principle was laid down by the court in the case of Nellis v. Clark, 20 Wend. 24, and Smith v. Hubbs, 1 Fair, 71; Goudy v. Gebhart, 1 Ohio St. 262, in all of which cases the question is thoroughly considered, and to which the special attention of the court is called.
    A fraudulent grantee or mortgagee cannot enforce any claims to or against the property in a court of equity; his only remedy is at law. Mason v. Baker, 1 A. K. Marsh. 208; Caston v. Ballard, 1 Hill, 406; Gebhard v. Satter, 40 Iowa, 152; Shiley v. Jones, 6 B. Munr. 274; Wearse v. Peirce, 41 Mass. 141; 
      
      Demeritt v. Miles, 22 N. H. 523; Wesfall v. Jones, 23 Barb. 9; Jones v. Comer, 5 Leigh, 350; Miller v. Murckle, 21 Ill. 152; Brookhover v. Hurst, 1 Met. (Ky.) 665. Neither can. an action be maintained on a note given with a fraudulent mortgage. Bookhover v. Hurst, 1 Met. (Ky.) 665.
    If a part of the consideration for transfer be merely a nominal or colorable consideration, contrived to hinder, delay or defraud creditors, the whole transfer is void. Floyd v. Goodwin., 8 Yerg. 848; Merrit v. Givens, 8 Ala. 694; Taitum v. Hunter, 14 Ala. 557; Burke v. Murphy, 27 Miss. 167; McKenty v. Gladwin, 10 Cal. 227; Fiedler v. Day, 2 Sandf. 594; Mead v. Combs, 19 N. J. Eq. 112; Hall v. Hayden, 41 Ala. 242; Albee v. Webster, 16 N. H. 362; Coolidge v. Melvin, 42 N. H. 510; Johnson v. Murcheson, 1 Winst. 292; Cameron v. McFarland, 6 American Dec. 566.
    If a mortgage is made with the intent to secure a part of the property to the mortgagee, and to cover the residue for the use of the debtor, it is void as to the whole. To render an instrument valid, it must be given in good faith and without any intent to defraud creditors, for an unlawful design vitiates the entire instrument and renders it void. Russell v. Winne, 37 N. Y. 591; Divver v. McLaughlin, 2 Wend. 596; Tichnor v. Wiswall, 9 Ala. 305; Goodhue v. Barrin, 2 Sandf. Ch. 630; Darwin v. Handley, 3 Yerg. 502; Young v. Pate, 4 Yerg. 164; Somerville v. Horton, 4 Yerg. 541; Swinford v. Rogers, 23 Cal. 233.
    A fraudulent stipulation in a written instrument vitiates the whole. The taint as to a part renders the whole instrument void. Whenever an instrument is good in part, and fraudulent in part, it is void altogether, and no interest passes under the part which is good. Hayslop v. Clarke, 14 Johns. 458; Mackie v. Cairns, 5 Cow. 547; Goodrich v. Downs, 6 Hill, 438; Albert v. Winn, 7 Gill, 446; McClurg v. Lecky, 3 Penn. 83; Robins v. Embry, 1 M. S. & Ch. 207; Jacot v. Corbett, Chev. Eq. 71; Howell v. Edgar, 4 Ill. 417; Dana v. Lull, 17 Vt. 390; Caldwell v. Williams, 1 Ind. 405; Pierson v. Manning, 2 Mich. 445; Green v. Branch Bank, 33 Ala. 643; Greenleaf 
      v. Edes, 2 Minn. 264; Palmer v. Giles, 5 Jones Eq. 75; Spies v. Boyd, 1 E. D. Smith, 445.
    
      FL\ W. Fa/rnham, Theo. K. Funk, and M. A. Dcmgherty, for defendant in error:
    The argument of plaintiffs in error is: That this trust, created in favor of said Elizabeth McQuade, was, when created, for the purpose of defrauding the creditors of said Hugh Reiley; and that because both the so-called fraudulent trust and honest loan are secured by the same mortgages, the whole is so tainted with fraud, immorality, and illegality, that the loan even cannot be recovered ba.ck. Our answer is : The widow Reiley, now Elizabeth McQuade, holding title to this real estate as sole heir of the so-called fraudulent grantor, is not permitted to make such a defense. We cite, in support of this proposition: Burgett v. Burgett, 1 Ohio, 469; Tremper v. Barton, 18 Ohio, 418; Brown v. Webb, 20 Ohio, 389; Robinson v. Robinson, 17 Ohio St. 480 ; White v. Brocaw, 14 Ohio St. 339 ; Webb v. Roff, 9 Ohio St. 430 ; Irwin v. Longworth, 20 Ohio, 581; Jackson v. Garney, 16 Johns. 189; Jackson v. Cadwell, 1 Cow. 622. In all these cases the holding is, that voluntary conveyances, made for the purpose of defrauding creditors, are good between parties and their heirs, and only void as to creditors and purchasers.
    We have only been considering Mrs. McQuade’s case, in her relation to it, simply as heir-at-law of Hugh Reiley; but she, in fact, stands in a light much more prejudicial to the claim of the plaintiffs in error than she does as an innocent heir. She was not only a party to the mortgages, but was the only person who was to be benefited by the so-called fraud. She was the only person in any way interested therein to the extent of a penny, except creditors, and if fraud there was she was a party to it, and the principal party to it. We claim that, on general principles, she should be estopped from setting up any plea that will enable her to derive any benefit from her own fraud. We are sustained in this position by La Farge v. Herter, 9 N. Y. 241, as well as by the case of Irwin v. Long-worth, before referred to.
   Boynton, C. J.

¥c think the court erred in excluding the evidence offered to show that the object of the mortgagor in giving the mortgages sued on to secure double the amount of money borrowed, and of the mortgagee in receiving the same, was to defraud the creditors of the mortgagor. Section 97 of the crimes act (1 S. & C. 429) makes it a penal offense, punishable by line and imprisonment, for any person to make any grant or conveyance, with intent to defraud his creditors of their just demands.

The object of the testimony offered and rejected was to show that a part of the consideration of each of the notes the mortgages were given to secure was illegal, and consequently that the mortgages were void. If a part of the consideration of each note was illegal, the effect would be the same as if the entire consideration were illegal, and such effect would be to render the mortgages void. If any distinct note that either mortgage was given in part to secure, was not tainted with the fraudulent purpose to defraud the maker’s creditors, no doubt equity would follow the law and enforce to that extent the mortgage security; but where a part of the consideration, whether large or small, is affected with the fraud, the case falls within the operation of the principle stated and affirmed in Widoe v. Webb, 20 Ohio St. 431. Hence, the testimony offered was clearly competent, unless the view is correct which the district court seems to have taken, namely, that the contract evidenced by the mortgages was fully executed between the parties. That such is not the character of the contract in the view of a court of equity, is apparent from a moment’s reflection. In equity a mortgage is but a chose in action, given to secure the performance of some act, usually the payment of money.

Where anything remains to be done to carry into effect the intention of the parties, and which can only be accomplished through the aid of a court of equity where one of the parties refuses to perform the stipulation which he has agreed to perform, the contract is executory. A mortgage being conditioned for the payment of a sum of money, or the performance of some other act, if the money is not paid or the act performed, and the equity of redemption is sought to be foreclosed, the active aid of a court of equity is required. The payment of the mortgage debt, or the performance of the condition, •whatever it may be, can be secured in no other way.

And this aid is always, and uniformly, denied, when sought to enforce a contract the consideration of which is illegal. In such case the maxim applies, in pari delicto potior est conditio defendentis, not because the defendant’s rights are superior to the plaintiff’s, but coming into court with unclean hands it refuses to exercise its powers in his behalf. The case of Raguet v. Roll (7 Ohio, 77) was a scire facias on a mortgage to charge lands with execution. The mortgage was given to secure the payment of the sum of $500, the consideration of an agreement to suppress and prevent a criminal prosecution. The relief sought was denied, and expressly upon the ground that the consideration of the mortgage was tainted with illegality. That case, in principle, is not distinguishable from this, and is decisive of the question now under discussion. The remaining point is, that because Mrs. McQuade signed the mortgages, she cannot allege that the consideration of the same was illegal either in whole or in part. This question "was settled in Goudy v. Gebhart (1 Ohio St. 262), and was also directly involved in Raguet v. Roll. The rule is, that in so far as the contract is executory, the defendant, although in pari delicto, or any one acquiring an interest in the property affected by the contract sought to be enforced, may set up the illegality of its consideration in defense. No one is allowed to set up his own fraud or criminality to defeat an innocent party, but where both parties are participes criminis, the fraud may be set up and proved by either party, when the unexecuted portion of the contract is sought to be enforced against him.

Judgment reversed and canse remanded. '