Case Name: BANK OF NEW HANOVER et al v. ADRIAN and VOLLERS et al.
Court: Supreme Court of North Carolina
Jurisdiction: North Carolina
Decision Date: 1895-02
Citations: 116 N.C. 537
Docket Number: 
Parties: BANK OF NEW HANOVER et al v. ADRIAN and VOLLERS et al.
Judges: 
Reporter: North Carolina Reports
Volume: 116
Pages: 537–550

Head Matter:
BANK OF NEW HANOVER et al v. ADRIAN and VOLLERS et al.
Action to Foreclose Mortgage — Fraud—Parties in Pari Pelicto — Fquity Jurisdiction — Question for Jury— - Trustee of Insolvent Delator Represents Creditors.
1. Where it appears to a Court of Equity that the parties to a suit are in puri delicto in respect to a covinous agreement, the Court will not interfere to give relief, but will leave the parties to exercise their rights as they may be permitted in a Court of lawn
2. Where, in the complaint in an action to foreclose a mortgage against an insolvent mortgagor it appeared that the mortgage was. given to secure notes for $90,000, payable in three years at 4 per cent, interest, and was not filed until the mortgagee became insolvent, and the answer filed by the assignee of the mortgagor (to which a demurrer was entered) alleged that the mortgage was given under an agreement and with the intent to hinder, delay and defraud the mortgagor’s creditors ; Held, That neither party was entitled to equitable relief and the Court will leave them io settle, in a Court of law, the question as to the fraudulent intentions of the parties and whether the assignee of the mortgagor was a subsequent purchaser with notice so as to postpone the creditors of the mortgagor to the claims of the mortgagee. (Avery, J., dissents.)
3. In an action to foreclose a mortgage against an insolvent mortgagor and his assignee to which the creditors of the former are not parties, the assignee represents the creditors and can interpose the defences that would be available for them.
On February 27, 1893, Adrian & Toilers executed their notes to the Bank of New Hanover in the sum of $90,000, payable three years after date, bearing four per cent, interest, payable quarterly; and on the same day executed a mortgage to secure the payment of said sum, which was registered June 19, 1893, the day on which said bank closed its doors and ceased to do business.
On June 20th, 1893, said Adrian & Tollers made an« assignment to the defendant, E. K. Bryan, in trust for their creditors, conveying all their property, including the property described in said mortgage deed. On June 19th, 1893, an action was duly instituted and pending in the Superior Court of New Hanover County, wherein Gabriel Holmes and J. H. Waters, who sue in behalf of themselves and all other creditors of said bank, are plain tiffs, and the Bank of New Hanover and others are defendants; in which proceeding plaintiff Davis was appointed receiver of said bank.
The present action to foreclose said mortgage was commenced September 12th, 1893, and the defendant E. K. Bryan, as assignee of said mortgagors, filed an answer alleging that said notes and mortgage were made and delivered under an agreement and with intent to hinder and delay the creditors of said Adrian & Tollers, and prays to have said mortgage deed declared void and that plaintiffs convey to defendants, &c. The plaintiffs’ demurrer to said answer, was sustained by Brown, J., at April Term, 1894, of New Hanover Superior Court, with judgment of foreclosure in favor of plaintiff, and defendants appealed.
Messrs. George Rountree and E. 8. Martin, for plaintiffs.
Mr. D. JO. Bussell, for defendants (appellants).

Opinion:
Faieoloth, C. J.:
It is conceded that ordinarily a court of equity will not interfere between parties to a covinous agreement but will leave them to their strict legal remedies; also, as it has been held that either party in pari delicto may by complaint, answer or proof, bring to the attention of the Court any fraudulent transaction to prevent the other from recovering the fruits of such transaction. Turner v. Eford, 5 Jones Eq., 106, and subsequent cases. Cur view is that in such cases a court of equity will stay its hand and leave the parties where they are to exercise their rights as they may be permitted in a court of law. As no equity to either party can arise out of an inequitable and illegal agreement, we fail to see how this Court, in the exercise of its equitable jurisdiction, can aid either party to such dealings. It is a Court of conscience and, within the scope of its powers, 'will be governed by its own rules.' ¥e are not aware of any decision of this Court in which it is held that it is moved or restrained by the Statute of Frauds. Code, Sects. 1545, 1546. It is trae that in some respects equity follows the law, but never to the extent of aiding in the consummation of an illegal, immoral or fraudulent contract. Lord Kenyon once said : " It - is safest to preserve the ancient landmarks of the law," and Pearson, C. J., said, " If the dividing line between law and equity be destroyed the science of law will be in utter confusion, and no one will be able to see his way." Turner v. Eford, 5 Jones Eq., 106, was a bill to compel a conveyance on a parol trust, but it appeared that the agreement was fraudulent and the Count declined interfering to compel a conveyance of the legal title.
In Triplett v. Witherspoon, 74 N. C., 475, the Court said : " Equity will not interfere to set up any transaction founded in fraud ; certainly not against a purchaser for value, but will leave the parties to their legal rights."
In Ellington v. Currie, 5 Ired. Eq., 21, upon a bill to avoid a deed made to defraud creditors tbe Court said: "Equity will not interfere with the operation of the statute at the instance of either party to a fraudulent conveyance."
In York v. Merritt, 77 N. C., 213, the action was by the grantee again gt the grantor for possession of the land conveyed to defraud creditors. The Court said, "When .the parties have united in a transaction to defraud another or others, or the public, or the due administration of justice, or which is against public policy or contra, bonos mores, the Courts will not enforce it against either party." Again in the same case, 80 N. C., 285, 290, it was held "That the plaintiff could recover (meaning in a court of law) as they were in pari delicto and this Court (Equity) in the exercise of its equitable jurisdiction, cannot interfere to give relief."
State v. Bevers, 86 N. C., 588, was a case in which defendant perpetrated a fraud on the State by purchasing land which he knew had been previously granted, and in the opinion Rum™, -J., said, on page 592, "There is no principle better established than that it is the duty of every court to withdraw its countenance from every contract or other act, the direct object or probable tendency of which is injurious to good morals or contrary to public policy." "No Court will lend assistance to one who founds his cause of action upon an illegal act, to which he was himself a party. As soon as the Court perceives that the action proceeds ex turpi causa and that the plaintiff's hands are polluted, it withholds its aid — not out of any consideration for the defendant, but because it will not, on the score of example and public policy, give countenance to such a plaintiff."
In Brookover v. Hurst, 1 Met., 665, (Ky.) the Court held, " A court of equity will not relieve the mortgagor from the consequences of his own fraudulent act, nor will it aid the mortgagee in securing him in the enjoyment of the property, when its interpretation is necessary for that purpose. The mortgagee is left to his legal remedies."
In Creath's Adm'r. v. Sims, 5 Howard U. S., 204, the following explicit language is used : " The following principles of equity jurisprudence may be affirmed to be without exception: "Whosoever would seek admission into a court of equity must come with clean hands; such a court will never interfere in opposition to conscience or good faith. A court of conscience touches nothing that is impure, and the answer to the party is — however unworthy may have been the conduct of your opponent, you are confessedly in pari delicto; and precisely, therefore, in the position in which you have placed yourself, in that position we must leave you."
We think all the cases cited can be reconciled with the foregoing general principles. We assume nothing unfavorable to either party except as it appears from the allegations and admissions.
The complaint alleges that the mortgagors, Adrian & Toilers, are insolvent; that they executed their notes and mortgage for $90,000 to the plaintiff, payable three years after date, bearing interest at four per cent, per annum. Would not a few such transactions close the doors of any bank in the State ?
It also alleges that said mortgage was recorded in five several Counties, giving book and page in each, but failing in each instance to state the day on which it was registered — alleging also that the mortgagee failód in business in less than four months and that the mortgagors on the day after the Bank failure conveyed all their property to defendant E. K. Bryan in trust for their creditors.
Now do not these badges of fraud disclosed in the com plaint, with the positive allegations of fraud found in the answer, and admitted by the plaintiff for the purpose of this action, coupled with the secret existence of the mortgage nearly four months and until the mortgagee itself is found to be insolvent, all subject to be explained and obviated of course by either party, present a question, to-wit, the intent of the parties in the execution of the notes and mortgage proper to be heard by a jury upon the proofs?
But. it is urged that the creditors of Adrian & Toilers are not parties to this action and their rights cannot be considered. We answer that their trustee, E. K. Bryan, is here resisting plaintiff's claim. But again, he is a subsequent purchaser with notice, and that the Stat. of Eliz., Sec. 13 and 27, postpones his to the plaintiff's claim. We answer that those are legal questions to be tried by a Court of law and a jury upon the evidence, specially as to the intentions of the parties, and that a Court of equity is not concerned therewith, and will not extend its aid to either party, but leave each in the full exercise of his legal rights as he may be advised. Then, in a case like the present, in which one party alleges fraud and the other admits it, this Court is asked by each party for equitable relief, but for reasons already stated we can not extend it to either party. Th^ demurrer is overruled and the cause remanded.
Judgment Reversed.