Court Opinion

ID: 8800588
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:29:48.526264+00
Date Added: 2024-06-11T17:03:53.100703
License: Public Domain

GILBERT, Circuit Judge
(after stating the facts as above). On the question of law presented upon the appeal, the leading case is Blennerhassett v. Sherman, 105 U. S. 100, 26 L. Ed. 1080. In that case it was held that a mortgage executed by an insolvent mortgagor to a creditor who knows of the insolvency, and who, for the purpose of giving him a fictitious credit, actively conceals the mortgage, and' withholds it from record, and represents him as having a large estate and unlimited credit, and thus enables him to contract debts which he cannot pay, is void at common law. In the opinion the court cited Hungerford v. Earle, 2 Vern. 261, where the doctrine was declared that “a deed not at first fraudulent may afterwards become so by being concealed or not pursued, by which means creditors are drawn in to lend their money,” and cited many cases in which the doctrine of Hungerford v. Earle was approved. That doctrine has been followed in numerous decisions of the federal courts. In Clayton v. Exchange Bank, 121 Fed. 630, 57 C. C. A. 656, a storekeeper executed mortgages to the bank, covering his entire property. The mortgages were withheld from record, although the storekeeper and the bank president both denied any agreement therefor. The storekeeper in purchasing goods referred to his rating, which he had given to a mercantile agency without mentioning the mortgages. He filed a voluntary petition in bankruptcy, and on the same day the bank recorded the mortgages. The bank president denied that he had reason to suspect the mortgagor’s insolvency, but admitted that he knew that the recording of the mortgages would have destroyed his credit, and that the purpose of keeping the mortgages off the record was to prevent impairment of his credit. It was held that the mortgage debts were not entitled to priority in payment over the claims of vendors who subsequently sold goods to the storekeeper. In Davis v. Cassels (D. C.) 220 Fed. 958, conveyances by a husband to his wife were withheld from record and concealed in order to avoid impairing the husband’s credit. It was held that they were void as to creditors who gave the husband credit on the faith of his apparent continued ownership. In National Bank of Athens v. Shackelford, 208 Fed. 677, 125 C. C. A. 575, a mortgage given by a bankrupt, although for a valuable consideration and valid as between the parties, but withheld from record by agreement or understanding between them so as not to affect the mortgagor’s credit, was set aside at the suit of the trustee. Other cases in point are: Corwine v. Thompson Nat. Bank, 105 Fed. 196, 44 C. C. A. 442; In re Noel (D. C.) 137 Fed. 694; In re Duggan, 183 Fed. 405, 106 C. C. A. 51; Fourth Nat. Bank of Macon v. Willingham, 213 Fed. 219, *880129 C. C. A. 563; In re National Boat & Engine Co. (D. C.) 216 Fed. 208; and see Loveland on Bankruptcy (4th Ed.) 921.
It is the doctrine of these decisions that such a'conveyance is not made valid by the fact that it is supported by a sufficient consideration; that a conveyance, not at first fraudulent, may thereafter be made so by being concealed, if creditors are thereby induced to give credit to the grantor; that it is unnecessary to allege or prove that the grantor was insolvent at the time of making the conveyance; that it is enough if there was an agreement between the grantor and the grantee, either tacit or expressed, that the conveyance was to be concealed for the purpose of sustaining the grantor’s credit, and credit was thereby obtained. The delimitations of the doctrine are carefully marked in Rogers v. Page, 140 Fed. 596, 72 C. C. A. 164, in which Judge Lurton said that “the mere fact that a mortgage has, by negligence, been omitted from registration does not avoid it as between parties,” that the mere fact of an agreement to withhold from record “is not of itself such evidence of a fraudulent purpose as to constitute fraud in law,” but that it is “a circumstance constituting more or less cogent evidence of the want of good faith, according to the particular situation of the parties and the intent as indicated by all of the facts and circumstances of the particular case.” In the case at bar, the complaint alleges more than a mere negligent failure to record, or a mere agreement to withhold from record. It alleges that there was no change of possession of the property, but that it remained in the open and notorious possession of the grantor, that the deed was withheld from record for the purpose of enabling the grantor to obtain credit upon his reputed and apparent ownership, and that such credit was obtained. These allegations, if established, entitle the appellant to the relief which he seeks. We hold that the appellees should be required to answer.
The judgment is reversed, and the cause is remanded for further proceedings. _