Court Opinion

ID: 6575697
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:34:04.909196+00
Date Added: 2024-06-11T15:57:00.281005
License: Public Domain

Williams, Ch. J.
Stevens being insolvent, and about to assign his property, and being desirous to secure something for some of his foreign creditors, and something for the support of his family, upon the advice of counsel that it would be legal and safe so to do, procured this defendant to give him his note for 800 dollars, and he, in return, to give his note to the defendant, for a like sum, secured by a pledge of goods and a mortgage of real estate. Upon a bill to foreclose the property so mortgaged, by other creditors of Stevens, who had a lien upon it, this court held, that the note and mortgage so given by Stevens to the plaintiff, was, as against creditors, fraudulent and void in law; so that the defendant is, in effect, deprived of the security which alone rendered his note of any value. And now, the plaintiff, a creditor of Stevens, claims, under our foreign attachment law, that the defendant is indebted to Stevens, notwithstanding.
One question reserved, which has not been pressed in argument, was, whether that decree might be given in evidence; and it is said, Bigelow was a party to it, and therefore, it was evidence against him. Whether he was party or not, he here claims no right but under Stevens; and it was there judicially settled, in a suit between Stevens and his creditors, that this note of the defendant to Stevens, was void as against his creditors; thus showing, as matter of fact, that the creditors had avoided the note. We see not, therefore, why this decree of the court is not admissible every where, and against every person, to show that fact. What influence that fact is to have, is a different question.
The claim of the plaintiff is met, by the defendant, upon several distinct grounds: 1. that if this transaction be fraudulent, then the note given to aid in carrying it into effect, *215must be void; 2. that if it is not, his note is equally good against Stevens, and may be set off against it; 3. that the consideration has failed, and so the plaintiff cannot recover.
1. The first question has, at least in this country, been the subject of various conflicting opinions. In the state of New-York, Cowen and Bronson, Justices, in the supreme court, contrary to the opinion of Ch. J. Nelson, held such note to be void. Chancellor Walworth concurred in that opinion. The supreme court of errors, by a bare majority, affirmed the opinion of the supreme court. They cite, in support of their opinion, the case of Smith v. Hubbs, 1 Fairf. 68. in Maine; and the case of Norris v. Norris, 9 Dana, 317. in Kentucky.
On the other hand, the courts of Massachusetts, and of Indiana, and of Pennsylvania, it is claimed, have held such notes void only as against creditors, but good as between the parties. Fairbanks v. Blackington, 9 Pick. 93. Dyer v. Homer, 22 Pick. 253. Findley v. Cooley, 1 Blackf. 262. Stewart v. Kearney, 6 Watts, 453. And in the case of Gaylord v. Couch, in our own court, we find Smith, J. to take the ground, that the court in New-York took; and on the other hand, Baldwin, J. to take the ground that the courts in Massachusetts have assumed, that such note is void only as it respects creditors. It is somewhat remarkable, if such notes are not collectable as between the parties, that the case of Harris v. Leader, Cro. Jac. 271. decided shortly after the statute of Elizabeth, should have been so little noticed, by English judges or elementary writers.
In this conflict of opinions, and when perhaps we ourselves might not entirely agree in opinion, we think it better to waive the consideration of the question, in a case where it is not important to the result to which we have come.
We are satisfied, that the other grounds of defence are sufficient.
2. The plaintiff comes in, claiming, that Lawrence owed Stevens: he comes in under Stevens, and claiming his rights. Now, if Stevens himself was plaintiff, ought he to recover in his suit? In that case, our statute would allow the defendant to set off a debt, which he had against the plaintiff, the plaintiff being insolvent.
But it is said, that this would defeat the very object the par*216ties had in view, in making these notes: it was intended, that each should be paid. Now, had things remained as they originally were, this might have been a good answer; but after the whole object of the arrangement has been defeated, by the creditors of Stevens, it seems to us, that it would hardly do for Stevens to say, that the defendant was defeating the arrangement, by his plea. We are now proceeding upon the ground, that the note of Stevens is good as between the parties; of course, Lawrence’s note must be equally good, and they must stand entirely unconnected with the claims of the creditors of Stevens, so far as regards the set-off.
But the case of Burrough v. Moss, 10 B. & Cres. 558. (21 E. C. L. 128.) and the case of Robinson v. Lyman, 10 Conn. R. 30. and some others, are adduced to show there can be no set-off. It seems to us, that these cases, so far from supporting that idea, prove the contrary position. If we are to assume, what is here assumed by the plaintiff, that he is in the same condition as the assignee of a note, then we do not think his case falls within the principle of these cases. In Burrough v. Moss, the court say, the indorsee of an over-due bill or note, is liable to such equity only as attaches on the bill or note itself, and not to claims arising out of collateral matters; and in Robinson v. Lyman, Church, J., in giving the opinion of the court, says, "there was no infirmity, nor illegality, nor legal nor equitable defence, existing against the note in question, while it remained in the hands of Moore, the payee, growing out of the existence of the note due to Patten & Russell;" and the judge adds, “indeed, there was no connexion, either in fact or by agreement of the parties, between the note in dispute and the debt due to Patten & Russell,” “But without some infirmity in the note itself, or some matter which would have constituted either an entire or partial defence to it, or without some equity arising out of the note transaction, or attaching to the note, the indorsee must hold it free from any claim of set-off.” 10 Conn. R. 34, 5. Now, in this case, it seems, that if there be an equity, it is not one arising from a collateral matter, but one which is attached to the note itself. These notes were given, one in consideration of the other; but the note of Stevens, it was known, was worthless, except as secured by the mortgage. And that it was so understood by them, is apparent from the fact, that *217counsel were consulted upon that point; and under that advice, the notes were given. When then, it appears, that these parties acted under this mistake, it is apparent, that the equity, whatever it may be, is attached to the note itself, and grows out of the original arrangement mistakenly entered into between the parties. The question is, whether the defendant holds any balance upon a liquidation of all demands; i. e. after Stevens' note has been applied on the note given by the defendant.
3. The court are also of opinion, that there has been such a failure of consideration for the note of Lawrence, as affords him a sufficient defence.
The contract between these parties, was not the ordinary case of a sale, by which the purchaser promised some advantage to himself, by speculating upon a doubtful title; but it was a contract, made at the request, and for the benefit, of another, without any possible advantage to himself; by which he agreed to exchange his note for that of one, who, he knew, was wholly insolvent, he being entirely secured therefor; and, the better to do this, legal advice is taken. It is apparent, therefore, that it was not intended or expected, that Lawrence should run any risk; and we think, there was an implied warranty, that he should be safe. It is not necessary, therefore, to go into the question, whether, upon eviction, an action of covenant will lie, if that eviction is not by title paramount. Here Lawrence has lost every thing of value, for which he consented to give this note. He has, indeed, got a paper, with the name of an insolvent upon it; he has a deed, which purports to secure him; but both are rendered as utterly valueless to him, as if they were mere blanks. He certainly has got but the shadow of what he contracted for.
We cannot say, therefore, as was said, by Ch. J. Nelson, in Nellis v. Clark, 20 Wend. 24. 40. there is no contract, express or implied, against this defect. That was a case, in which the vendor sold, (and the vendee bought, with full knowledge of the fact,) to defeat a suit then pending against him; and the judge adds, the land never could have been lost to the defendant, without proof of his knowledge, and that the defendant took the title with full knowledge of the defect; and there is, therefore, no rule applicable to the construction of contracts, which would make the vendor responsible, under *218such circumstances. The case, says the judge, falls within the familiar principle, that imposes upon the purchaser the responsibility of any defect in the article of property, whether real or personal, when he takes it with such knowledge, and without guarding against it, by his contract; and he presumes the defendant provided for this risk of the claims of creditors, by an abatement of the full value of the land; or if he did not, it was his own folly. 20 Wend. 40. 41. And Chancellor Walworth, in his opinion in the court of errors, in the same case, says, when the vendee gave this note, he assumed the risk of losing his land, if the fraud was discovered; and much reliance is placed, by the senators who gave an opinion, upon the fact that the loss was occasioned, by the fraud of the defendant himself; and they said, the court would not stoop to adjust the equities of the parties to a fraudulent transaction. 4 Hill, 424.
In the case before us, we are proceeding upon the assumed principle, that as between these parties, there is no fraud: and they, therefore, must stand upon the same ground, as if there were no creditors concerned. How would the case stand, if Stevens had avoided this deed himself? Is he, (aside from any fraud,) in any better condition as it regards this note, whether he gets the benefit of the avoidance, by his own act, or the act of another? In either case, he receives back all of value that he paid; and in both cases, therefore, it must be most inequitable that he shall be permitted, while he retains the thing granted, to recover the price to be paid for that grant.
Besides, in this case, so far from being intentionally party to a fraud, as was Clark in the case referred to, the defendant has studiously avoided every thing like actual fraud. It has been decided in Massachusetts, that if the security given for the price of property sold, proves of no value, or the purchaser, by the informality of the sale, or want of title in the seller, fail to become the owner, it is such a defect of consideration as will avoid the security. Bliss v. Negus, 8 Mass. R. 46. Parish v. Stone, 14 Pick. 199. And a case more resembling this came before the same court, at a later period. A bill of sale was given by the plaintiff, to the defendant, of certain articles of personal property, for which the note in suit was given. These articles were suffered to remain in *219possession of the plaintiff, as before; and he sold and disposed of part of them, and then sued the note, claiming that it was the property of another man. Shaw, Ch. J. says, that the case stands upon the broad ground, that the consideration has failed. As between the parties, between whom the conveyance was not fraudulent, the using of this property must be taken to be a rescinding of the contract pro tanto, by mutual consent, and to the same amount a reduction of the note. Dyer v. Homer, 22 Pick. 261. And they rely upon Bailey v. Foster, where a note had been given by a vendee, on a conveyance of property made to defraud creditors, and that conveyance had been avoided, by an attachment. The court held the note could not be enforced against the purchaser. The contract is said to be good, except as to creditors and purchasers; and the note good, until the contract was rescinded, by the parties thereto, or avoided by the creditors. 9 Pick. 139.
We advise the superior court to enter judgment for the defendant.
In this opinion the other Judges concurred.
Judgment for defendant.