Case Name: Emanuel Schloss et al. v. Lyman Feltus
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1895-01-08
Citations: 103 Mich. 525
Docket Number: 
Parties: Emanuel Schloss et al. v. Lyman Feltus.
Judges: Long and Grant, JJ., concurred with McGrath, C. J.
Reporter: Michigan Reports
Volume: 103
Pages: 525–540

Head Matter:
Emanuel Schloss et al. v. Lyman Feltus.
[See 96 Mich. 619.]
Sale — Bona fide purchaser — Pre-existing debt.
A naked, pre-existing debt is not such a consideration or payment for the transfer of a stock of goods as -will defeat replevin by the original vendors, who set up fraud in the purchase of the goods from them.
Rehearing, upon application of the defendant, of case reported in 96 Mich. 619.
Argued January 16, 1894.
Former opinion affirmed January 8, 1895.
The facts are stated in 96 Mich. 619.
II. M. Oren (Julian G. Dickinson, of counsel), for appellants.
McMahon & Terkes (M. G. Burch and Dwight Goss, of counsel), for defendant.

Opinion:
McGrath, 0. J.
Upon rehearing, after the fullest consideration, we find no reason to change the former opinion. 96 Mich. 619. The principal question in the ease is whether a naked, pre-existing debt,is such a consideration or payment for the transfer of a stock of goods as will defeat replevin by the original vendor, who sets up fraud in the purchase from him.
The rule, as laid down in 16 Amer. & Eng. Enc. Law, 837, is that a pre-existing debt is not such a consideration as will sustain the plea of " Iona fide purchaser for value," except in the case of negotiable paper. The cases cited will be found to fully support the text. Other cases will be found collected in Tied. Sales, § 329; Hil. Sales, p. 332; and Benj. Sales (6th ed.), p. 448. Mr. Tiedman says:
" Although there are a few cases which maintain that a pre-existing debt is a sufficient consideration, the better opinion is that it is not sufficient, because there is no parting with value in reliance upon the title to the goods thus acquired, and that an attaching or other creditor is not a bona fide purchaser."
Some of the cases would seem to make a distinction between a receipt of property in payment of a pre-existing indebtedness, and a receipt in satisfaction or discharge of such debt, — that a satisfaction can only result from an agreement to that effect; but payment operates as a discharge or satisfaction of the debt, and in either case the failure of title revives the debt.
The case of Dickerson v. Tillinghast, 4 Paige, 215, was a bill to foreclose a mortgage given by Catharine Tilling-hast. Defendant Charles T. was the son of the mortgagor, who received a conveyance of the premises from his mother, subsequent to the mortgage,. the consideration for which was a debt due the son from his mother. Baze v. Arper, 6 Minn. 220, was a case of where the only consideration for a deed of land was a precedent debt. Root v. French, 13 Wend. 570, was a case of where a grocer had assigned his stock of goods to indemnify the assignee against liability as indorser for the assignor.
No distinction is made between a conveyance in payment of a debt and one given as security therefor. This Court has, in a number of cases, recognized the rule as applicable to conveyances as security for a pre-existing debt. Boxheimer v. Gunn, 24 Mich. 372; Kohl v. Lynn, 34 Id. 360; McGraw v. Solomon, 83 Id. 442; Edson v. Hudson, 83 Id. 450. But it is insisted that under our authorities this is the limit of the rule, and Bostwick v. Dodge (decided in 1844), 1 Doug. 413; Outhwite v. Porter (1865), 13 Mich. 533; and Hanold v. Kays (1887), 64 Id. 439, — are cited to support that contention.
In Bostwick v. Dodge, Bostwick gave his note to one Hooper, who indorsed it over to Dodge in payment of a debt due from Hooper to Dodge. The Court in that case say:
" It has been long and uniformly held that the ex-tinguishment of a pre-existing debt was as valid and sufficient a consideration for the transfer of a negotiable instrument as the payment of money, or the delivery of any species of property whatever. That the rule is one of great convenience and necessity, even, to a commercial community, is too obvious to require illustration, and its adoption in no way contravenes the principles of natural justice."
In Outhwite v. Porter, Porter held notes made by one Can tine. Outhwite bought out Can tine's business, and Porter surrendered Cantine's notes, taking from Outhwite the latter's notes. Although Bostwick v. Dodge is cited, the Court held that Cantine had been released; that it was a case of novation by the substitution of one debtor for another, by the assent of the three parties.
In Hanold v. Kays, K. was indorser upon certain outstanding notes made by one 0. In consideration of K.'s agreement to take up and pay said notes, 0. conveyed certain land to K, The Court say that K. had paid the notes before notice, and that such payment formed a sufficient consideration for the deed. It had been repeatedly held by this Court that an . agreement to pay — a mere executory contract — was not a sufficient consideration, but that payment actually and in good faith made before notice entitled the' vendee to protection, and such is the universal rule. In that case, however, the Court use language unnecessary for the determination of that case, and regard Bostwick v. Dodge as authority for saying that one who takes a deed of land in absolute payment of a debt due him is a Iona Me holder for value. From an examination of the authorities, however, it will clearly appear that the rule laid down in Bostwick v. Dodge is an exception to the general rule, and the difficulty with the Hanold case is that it substitutes a recognized exception for the rule.
In Currie v. Misa, L. R. 10 Exch. 153, Lord Coleridge, in a dissenting opinion, — his contention being that the exception did not apply to a mere check in the hands of a holder for value, — says:
"It is too late to dispute that a pre-existing debt, due to the transferee of a bill, entitles him to all the rights of a holder for value. But it seems equally clear that this is an exception to general rules,- — an extraordinary-protection given to such a holder on grounds of commercial policy only, and in order to favor the unrestricted use, as currency, of negotiable,instruments."
In Whistler v. Forster, 14 C. B. (N. S.) 248, it is saidr
" The general rule of law is undoubted that no one-can transfer a better title than he himself possesses. To this there are some exceptions, one of which arises out of the rule of the law merchant as to negotiable instruments. These, being part of the currency, are subject to the same rule as money; and if such an instrument be transferred in good faith, for value, before it is overdue, it becomes available in the hands of the holder, notwithstanding fraud which would have rendered it unavailable in the hands of a previous holder."
In Bay v. Coddington, 5 Johns. Ch. 54, the exception is recognized, but the court refused to apply the principle to that case as made. In Dickerson v. Tillinghast, supra, the case of Bay v. Coddington was referred to as sustaining the rule adopted; but, although Bay v. Coddington has been overruled, the rule of Dickerson v. Tillinghast remains the law of that state. The cases in support of the rule excepting commercial paper are collected in 2 Rand. Com. Paper, § 461-465, and the subject is referred to in 2 Amer. & Eng. Enc. Law, 392.
There are authorities which refuse to recognize either rule or exception, but the rule is supported by the great weight of authority. The serious conflict is as to the recognition of the exception in favor of commercial paper. Our own Court, in Bostwick v. Dodge, has determined that question; and the rule there laid down must be regarded as an exception to the general rule of law, and cannot be carried beyond the necessity that gave rise to it. The doctrine of that case has no application to the transfer of a non-negotiable instrument. In Whistler v. Forster, supra, the court refused to apply it, for the reason that the paper was not indorsed until after notice.
The term " bona fide purchaser" is borrowed, from equity jurisprudence, and must be interpreted accordingly. Mr. Pomeroy, in his Equity Jurisprudence, says:
" There must be actual payment before any notice, or what in law is tantamount to actual payment, — a transfer of property or things in action, or an absolute change of the purchaser's legal position for the worse, or the assumption by him of some new, irrevocable, legal obligation." Sections 747, 749-751.
It is well settled by our own Court that one must pay as well as purchase. Thomas v. Stone (1843), Walk. Ch. 117; Dixon v. Hill (1858), 5 Mich. 404; Warner v. Whittaker, 6 Id. 133; Blanchard v. Tyler, 12 Id. 339; Stone v. Welling, 14 Id. 514; Matson v. Melchor, 42 Id. 477.
In Blanchard v. Tyler, one Hearse claimed to be a Iona fide purchaser. He paid nothing to Tyler. Tyler was owing him about $7.50, which was to apply on the purchase, and he gave a non-negotiable note for $600, less $7.50. The note was' to be paid by turning out other notes, and this was not done until some time afterwards. The Court held that H'. was not a Iona fide purchaser; that whatever he paid was after notice, and such payment was made in his own wrong.
In Stone v. Welling, Stone filed a bill to foreclose a mortgage given by Hart, making Welling (a subsequent purchaser) a party defendant. The consideration for the deed from Hart to Welling was an agreement by the latter to give up to the former certain judgments and notes held by Welling against Hart, and to release the latter from an existing indebtedness. Mr. Justice Cooley, for the Court, says:
" But the question in this case is whether there was an actual payment of value for the land by Welling before notice of complainant's mortgage; and, to make the agreement amount to such a payment, jt must at least have been one which Hart, at the time, could have enforced as a discharge against Welling & Root. The evidence shows that the agreement was wanting in the consideration agreed upon, since the land covered by the deed had previously been incumbered by the mortgage to complainant. There was no impediment, therefore, to Welling & Root proceeding in the collection of their demands against Hart & Williams, if the facts had all been made kno'wn to them."
In Chadwick v. Broadwell (1873), 27 Mich. 6, the logs had been transferred to Chadwick in payment of the balance due on the stumpage contract between Chadwick and Lester; but the Court intimated that Chadwick had paid nothing, and that, should the purchase fail by reason of the fact that Mrs. Broadwell insisted upon her legal rights, the debt against Lester would remain.
In Battershall v. Stephens (1876), 34 Mich. 68, 74, Mr. Justice Grates refers approvingly to the rule that, in case the consideration is merely a past indebtedness, the purchaser is not entitled to be regarded as a Iona fide purchaser.
In Boxheimer v. Gunn, 24 Mich. 372, Chief Justice Ohristiancy uses this language:
"The defendant's answer, as we have already seen, alleges the conveyance to Sutton to have been made to him merely as security for a precedent debt, and does not claim that any other consideration was paid or agreed to be paid; or that any time was to be given or had been given; or that the form of the debt was changed; or that he had relinquished any remedy in consideration of the •conveyance; or, finally, that his own position would not be equally as good to-day, if the conveyance should turn cut to be utterly valueless, as it was before the conveyance. He has not, therefore, by his answer, placed himself in •the position of a bona fide purchaser or incumbrancer for value, with equities superior to those of the complainant, though it should be admitted that he acted in good faith, and without notice;" citing Stone v. Welling, 14 Mich. 514.
It certainly could not have been contended, in view of the authorities referred to, that an unexecuted agreement to pay would constitute one a bona fide purchaser.
I do not desire to be understood as saying that an agreement to extend the time of payment may not be such a consideration as will support a mortgage given for a preexisting debt, nor that the release of security, or perhaps the surrender of evidences of indebtedness, may not be a sufficient present consideration to uphold a conveyance made in payment of a pre-existing debt. In the present case there was no change in the form of the debt.
It is urged that the vendor had other property out of which the purchaser might have made his debt. It is not necessary to pass upon that question. The transfer was made September 29, and on the 4th of October the vendee was notified of plaintiffs' claim. There is no evidence of any change in the debtor's circumstances respecting such other property, if he had any, between those dates. Under the rule laid down in Stone v. Welling, the creditor could then have avoided the discharge or release of the debt, to the extent of the failure of title. As to the rule that the purchaser is entitled to protection only to the extent of payments actually made at the time of the notice, see, also, Dickinson v. Wright, 56 Mich. 42, and Sheldon v. Holmes, 58 Id. 138.
We did not deem it necessary in the former opinion to discuss other questions raised by the record, and do not now.
The judgment must be -reversed, and a new trial ordered.
Long and Grant, JJ., concurred with McGrath, C. J.
See Mayer v. Heidelbach, 123 N. Y. 339, and cases there cited.