Court Opinion

ID: 7046769
Source: CourtListenerOpinion
Date Created: 2022-07-24 06:55:54.456151+00
Date Added: 2024-06-11T16:11:34.009996
License: Public Domain

On Petition for a Rehearing.
Elliott, J.
— The appellant’s counsel ask us to grant a rehearing upon some of the points decided, and have again submitted lengthy briefs.
It is said that an error in naming the parties by calling Charles Jesse and Jesse Charles led to an erroneous conclusion ; that there was an error in one place in giving the names is true; that it led to an erroneous conclusion is a mistake. The entire context of the opinion disclosed the trivial error in names, and clearly indicated the questions discussed.
It is said we did not examine the cases cited, and in this counsel are in error. We have not supposed it necessary to «comment on all cases cited in argument; we have supposed it *336only necessary to decide the points presented without, in every instance, making a commentary on the adjudged cases. We examined the case of Trustees of Union Colleger. Wheeler, 61 N. Y. 88, and found it in conflict with decisions of Chancellor Kent and other great lawyers, and that it is probably not in harmony with the weight of authority. But we found,, also, that whatever might be its weight, it was not at all in point in the present instance. The point there decided which comes nearest any involved in this cáse is, that the assignee of a bond- and mortgage takes them subject not only to any latent equities of the obligor and mortgagor, but of third persons having an interest in the mortgaged premises. The distinction between that case and the present is so plain that, we can not see how it could be overlooked. In this case the appellant had no interest in the land; he was a mere general creditor. We have never before heard it contended that a, general creditor has a latent or patent ownership in his debtor’s land.
DeWitt v. VanSickle, 29 N. J. Eq. 209, upon which somueh reliance is placed, is as directly against the appellant and as flatly opposed to some of the dicta of the New York case as it is possible for one thing to oppose another. It is decided in that case that an assignee of a‘mortgage takes it “ subject to all defences existing against the mortgagee in favor of the mortgagor, but free from latent equities existing in favor of third persons.” It is evident, however, that counsel did not desire us to accept the decision as authority upon the point stated, but wish us to accept it as authoritative upon another point, and that is, that the assignee of a fraudulent mortgage who yields as a consideration an antecedent debt can not acquire any greater rights than the assignor possessed. If we were to concede in full the correctness of this decision, it is clear that it would do the appellant no good. Here the appellee surrendered a debt which was due him from Jesse Boling, and accepted a note executed by another person by which the time of payment was extended, and there is, therefore, a *337complete and radical change of position. In the New Jersey case the court treat as controlling the fact that the creditor was left precisely where he stood before. We make this extract from the opinion : “ He is put in no worse condition than he was before he obtained it; in the language of some of the judges, he is not hurt.” Our own cases are directly and fully against appellant. In Gilchrist v. Gough, 63 Ind. 576, it was held that an extension of time constituted the creditor a bona fide purchaser, the court saying: “For it appeared that, in each of said mortgages, the time of payment of the pre-existing indebtedness, to secure which the mortgage was given, had been extended for the term of one year, and this extension of time, as we have seen, was sufficient to make him a purchaser or mortgagee for a valuable consideration, as to each of the mortgages.”
In the case of Kester v. Hulman, 65 Ind. 100, this doctrine is reaffirmed. The question again came before the court in Mayer v. Grottendick, 68 Ind. 1, where Gilchrist v. Gough, supra, was approved, and Nibback, J., speaking for the court, '.said : “ The renewal of a subsisting note and the consequent extension of time constitute, in any event, a sufficient consideration for a mortgage.”
Counsel assume that the decision protects the fraudulent acts of the assignor of the note and lien, but this assumption is wholly unwarranted, for the protection is extended only to the assignee who paid value and acted in good faith. We considered it in our original opinion as a plain principle of equity that a grantee who acquires rights for value, and in good faith, is protected, no matter what may have been the infirmity in the grantor’s title and we suppose that no lawyer questions this doctrine, for all who have read the elementary books know thatitis one of the earliest principles taught the student. Counsel say that we ought not to pass the case of Mingus v. Condit, 23 N. J. Eq. 313 (8 C. E. Green), without notice. We did not pass it without an examination, but we found it not *338applicable to this case. What is there decided is, and we give the point in the language of the Chancellor: “ The rule of equity regulating the transfer of property is that a purchaser who has obtained title as a mere security for or payment of a pre-existing debt, without parting with any thing of value, is not entitled to the character of a bona fide purchaser for value.” What we have said shows the inapplicability of this doctrine to the present case.
Turning for a moment to the answers. The second paragraph admits, because it neither avoids nor denies, that the consideration paid was that described in the complaint, and it does not aver notice of the fraud of the assignor, and surely we need say no more of this paragraph. The third does aver that the notes were assigned for a pre-existing debt due from the maker of the note, but it does not aver that there was no change of position by the release of the original debtor; nor does it charge that the appellee had notice of the fraud. In view of this we can not see in what respect the case of Dugan v. Vatier, 3 Blackf. 245 (25 Am. Dec. 105), favors the appellant. There it was decided, to quote Judge Blackford’s note : “A debtor to defraud his creditors, conveyed his real estate to a person with notice of the fraud. Held, that a bona fide purchaser, for a valuable consideration, from the fraudulent grantee, — having paid the purchase-money, and received a deed, before notice of the fraud, — will hold the estate against the creditors of the grantor. Aliter, if the purchaser from the fraudulent grantee had notice of the fraud.” The case cited is against, not for the appellant. The fourth paragraph of the answer does contain the necessary averment, but on this paragraph the ruling was in appellant’s favor.
Howell and Reyman were general creditors, with equal rights, and the debtor might, had he chosen, have conveyed the land directly to Howell, and is there any valid reason why he could not transfer the notes which represented the land? Our cases, however it may be elsewhere, have from the earliest time recognized the right of the debtor to prefer one cred*339itor to the exclusion of others. Anderson v. Smith, 5 Blackf. 395; Hubbs v. Bancroft, 4 Ind. 388; Stewart v. English, 6 Ind. 176. And the effect of the debtor’s act in this case was simply to create a preference. If the creditor who takes the property does not participate in the fraud of the seller, he will acquire title. Ball v. Barnett, 39 Ind. 53; Bump Fraud. Conv. 485. In the case last cited it was said of the creditor who acquired the property of the debtor who had been guilty of fraud: “ Her purpose was to secure part of an honest debt, and this she had the right to do, although it defeated the payment of other creditors, if she was guilty of no fraudulent conduct. She, by her superior diligence, accomplished, by the purchase of the property, what the appellants attempted to do by obtaining a confession of the judgment.” These observations are strongly pertinent to the present case. The case of Sharp v. Jones, 18 Ind. 314, decides that “A purchaser of goods from a fraudulent vendor may have the legal and beneficial ownership in him.” Lord v. Fisher, 19 Ind. 7; Moore v. Meek, 20 Ind. 484.
We have incidentally said that a mere general creditor has no interest in the debtor’s land until after judgment, and we now refer to a few cases upon that subject. Runyan v. McClellan, 24 Ind. 165; Russell v. Houston, 5 Ind. 180; Kennedy v. Shaw, 38 Ind. 474, vide op. 478; Bump Fraud. Conv. 14.
It is said, in Bump on Fraudulent Conveyances, 448, that “A third person who is innocent of the fraud may enforce a promise made to him for a valuable consideration, although it grew out of the fraudulent transaction,” and our case of Moore v. Meek, 20 Ind. 484, is cited as authority. This is substantially the position which the appellee occupies.
We have shown that the cases in the New Jersey court are unlike the present, and that is enough to exclude them from controlling influence here, but we do not mean to be understood as approving them. Mr. Bump says: “ When a transfer, however’, is made to a creditor, his equity is the same as that of the others, and he is entitled to the benefit of the universal *340rule, that where the equities are equal the legal title must prevail. An existing indebtedness is, therefore, a good consideration within the proviso which saves the rights of bona fide purchasers. There being no equity prior to that of the vendee, the necessity which calls for a new consideration in other cases does not exist.” Bump Fraud. Conv. 178. This is the rule of our court. McMahan v. Morrison, 16 Ind. 172; Dillon v. Dorne, 19 Ind. 203. The doctrine of thése cases has not been changed, although some of the expressions in one of the opinions have been modified. Gilchrist v. Gough, supra.
It leads to error to lose sight of the important fact that general creditors are equals, neither has the prior equity, and the fallacy in the New Jersey cases is in assuming, what cau not be proved, that one general creditor has an equity superior to that of another creditor of the same class. New expressions are more common than that “ the race is. one of diligence between creditors,” and this implies that they start from the same point; that at the beginning of the race they are equals. If they are equals, then he who secures, without fraud, legal title to property and pays for it by releasing an antecedent debt, must hold it, for it is a fundamental principle pervading the universe of law, that the legal title will always prevail unless there are. prior equities or rights. The principle laid down in many cases that a pre-existing debt will not constitute such a consideration as will make one a bona fide purchaser against a person having prior equities, can not apply where rights and equities are equal. To hold that it does would ovei’turn all the cases which decide that a debtor may sell his property to one creditor in payment of an existing debt. If the consideration is not a valuable one, then no creditor can buy his debtor’s property and pay for it by releasing an antecedent debt, for if there is: no valuable consideration, then, as against creditors, the sale is constructively fraudulent and void. But no lawyer will question the right of the creditor to buy and the debtor to sell, and, therefore, the conclusion must be that an antecedent debt is a valuable *341consideration. The error in the decisions of the New Jersey-court is in assuming that there are different priorities in creditors of the same class. If one creditor can be said to have a prior equity, then it might well be that an antecedent debt would not constitute the creditor who bought the debtor’s property with it, a bona fide purchaser, but it can not be said, without violating fundamental principles, that the equities of one creditor are prior or superior to those of'another creditor of the same class. Petition overruled.
Filed Jan. 29, 1884.