Court Opinion

ID: 5572432
Source: CourtListenerOpinion
Date Created: 2022-01-11 01:15:22.027361+00
Date Added: 2024-06-11T08:35:48.283534
License: Public Domain

ON MOTION EOR REHEARING.
Cobb, J.
Application is made for a rehearing upon the propositions laid d‘own in the 5th, 6th, and 7th headnotes. This raises the question as to what is an “ antecedent ” or “ pre-existing ” debt, within the meaning of that rule which asserts that a mortgagee who takes a mortgage to secure a pre-existing or antecedent debt is not a bona fide purchaser for value. It is contended that a mortgagee is not a bona fide purchaser within the meaning of this rule, unless he pays value at the time his mortgage is taken; that is, unless the consideration of the mortgage passes at the date of its execution, the mortgage is given to secure an antecedent debt. In 1 Jones on Mortgages, §460, it is said: “He [the mortgagee] must have parted with some value or some right upon the faith of the mortgage and at the time of it, to entitle him to protection as a purchaser. He must have received some new consideration, or must have relinquished some security for a pre-existing debt due him.” In 2 Mechem on Sales, § 924, it is laid down that a seller who has been induced to make the sale by the fraud of the vendee may recover the property from purchasers, pledgees, mortgagees, or others who have acquired a 'lien on it as security for, or who have taken the property in payment of, an antecedent debt, “ unless they have at the time parted with value, released securities, or otherwise changed their position to their prejudice, in reliance upon the vendee’s apparent power to transfer the goods to them.” In 14 Am. & Eng. Ene. L. (2d ed.) 288, it is stated: “A mortgagee who takes the deed as security for money presently loaned is a purchaser to the extent of his interest in the premises.” The expressions, “ at the time,” and “ presently,” as well as similar expressions in some of the decided cases, seem to give support to the contention made by the applicant for a rehearing. These expressions must, however, be construed in connection with the facts of the cases which are cited to sustain them, or in which they are used. *587In all of the cases cited which have been examined, as well as in others to which our attention has been called, it appeared, either distinctly or by inference, that the antecedent or pre-existing debt referred to was a debt created before the fraudulent sale. Certainly in none of them was it shown that the debt was created or the credit extended after the sale. The identical question involved in this case, as to whether, when the debt was created or the credit extended after the sale and on the faith of the mortgagor’s apparent ownership of the property, a mere lapse of time between the creation of the debt or the extension of credit and the execution of the mortgage will make the mortgagee the holder of a mortgage given to secure an “ antecedent ” or “ pre-existing ” debt, seems never to have been raised in any case. It is certainly one of first impression in this court. Generally the credit is extended and the mortgage taken at the same time. In Chance v. McWhorter, 26 Ga. 315, it was held that a- vendor’s lien upon land for the unpaid purchase-money will not be set aside in favor of a mortgage given by the vendee to.secure an “antecedent debt.” It appears from the statement of facts in that case that the debt which the mortgage was given to secure was contracted “ long before the sale” of the land. In Phillips v. Roquemore, 96 Ga. 719, it was simply held that a judgment creditor was not a bona fide purchaser for value, even though he extended credit upon the apparent unincumbered ownership of property, and that therefore the holder of a mortgage had a right to reform it as against the judgment creditor. While a judgment creditor has thus been held not to be a purchaser for value, it has nevertheless been often held that when such a creditor had extended credit upon the faith of property the title to which was in the debtor, the rights of the creditor were superior to the rights of one who, having a secret equity in the property, permitted the debtor to take title in his own name and exercise acts of ownership in connection therewith. See Gorman v. Wood, 68 Ga. 524; Burt v. Kuhnen, 113 Ga. 1144, and cit.; Gentry v. Cowan, 66 Ga. 722. There are cases holding that a creditor who accepts goods from a fraudulent vendee will be protected though the goods were taken in payment of a pre-existing debt, this term being apparently used to indicate a debt contracted before the fraudulent sale. See, for example, Shufeldt v. Pease, 16 Wis. 689, and cases cited; Lee v. Kimball, 45 Me. 172; Butters v. *588Haughwout (Ill.), 89 Am. Dec. 401. These decisions are, however,, contrary to many of the decisions of this court, and are opposed to the great weight of authority. . Where a sale is agreed upon and it is the intention of the parties that title shall pass under the sale, and possession of the goods is delivered to the vendee, he is the owner of the goods, notwithstanding the sale may have been brought about by the perpetration of a fraud. In such a case the fraud does not render the sale void, but only voidable at the instance of the vendor. 2 Mechem, Sales, § 908; Kerr, Fraud & Mistake, 328; Henderson v. Gibbs (Kas.) 18 P. 929. The Civil Code, §3532, which provides that fraud “ avoids the sale,” manifestly means, renders it voidable at the election of the vendor. It certainly does not mean to deprive him of the right to affirm or ratify the contract if he so desires. The rule would be otherwise, however, if the parties did not intend that title should pass, but the purpose was merely to deliver possession pending negotiations of sale. Ben j. Sales (Bennett’s 7th ed.), § 433. We can see no reason why one who extends credit on one date to a fraudulent vendee on the faith of his ownership of property, without notice of the fraud, and then on a subsequent date, and also without notice, takes a mortgage to secure this debt, should not be treated as standing upon the same footing as one who extends credit without notice of the fraud and on the faith of the vendee’s ownership and immediately takes a. mortgage to secure the debt. The distinction between cases like the present and those where the credit was extended before the sale is apparent. In the latter case the credit can not be extended on tbe faith of the debtor’s ownership of the property, and in the former it can. The rule which would exclude an ordinary creditor extending credit on the faith of the debtor’s ownership, under the strict definition of a bona fide purchaser,- is a harsh one; and when such a creditor afterwards and before he discovers the fraud obtains a lien by contract to secure his debt, he is, in our opinion, as much entitled to protection as if the execution of the instrument creating the lien and the creation of the debt had been contemporaneous. If he acts to his injury in extending credit in good faith on the vendee’s possession of and apparent indefeasible title to the goods, he ought to be protected, if he subsequently and in good faith and without notice takes a security which would bring him within the class denominated bona fide purchasers. On the general subject *589as to who is a purchaser, see Benj. Sales (7th ed. Bennett), 477 The conclusions stated in the original opinion upon which a rehearing is asked still seem to us, upon further investigation, to be sound, and no sufficient- reason has been given why a reargument of the case should be had. Application denied.

By five Justices.