Court Opinion

ID: 7937458
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:11:08.978086+00
Date Added: 2024-06-11T16:33:35.684950
License: Public Domain

Montgomery, J.
(dissenting). I am not able to concur either in the result reached by my brother, the Chief Justice, nor in his interpretation of the previous decisions, of this Court. It is well settled that one who is defrauded' by a purchaser of goods may rescind the sale and recover the goods, as against any but a Iona fide purchaser for value. Benj. Sales, § 428 et seq. It is equally well settled that the maker of a promissory note may set up a failure of consideration, as against any but a Iona fide purchaser for value. It seems to me illogical and confusing to apply in the one case a test in determining whether one is abona fide purchaser which does not obtain in the other. To do so is to surround the question with haze and uncertainty. For, while it may be said that the law merchant favors the transmission of commercial paper from hand to-hand, yet the extent to which the law offers inducement to this free use of commercial paper is definitely defined, and the law upon the subject is admittedly settled to go-to the extent only of protecting Iona fide purchasers, and; *533io precisely the same extent it is the settled doctrine that the law favors transmission of personal property. What, then, constitutes a bona fide purchaser? The payment of •a present consideration undoubtedly does. The surrender ■of security by a creditor would likewise constitute a sufficient consideration. The reason why an extension of time is a sufficient consideration to constitute the creditor a bona fide purchaser is that the creditor has, for a time, put it out of his power to proceed against the debtor. It •■seems to me that he has done this equally if he has discharged the original debt. Certainly, if the discharge of a pre-existing debt can be said to be parting with something of value, and a new consideration, when it is paid for a promissory note, it is inconceivable how it can, on the other hand, be said not to be of value, and a new consideration, when paid for a bale of cotton.
The cases in this Court involving the question of whether the purchaser of a promissory note'or other property is entitled to claim the rights of a bona fide purchaser have turned upon the question of what the purchaser parted with, and not upon the question of what the seller parted with. If, therefore, the purchaser did not change his position, or surrender any rights, as, for instance, if he accepted a promissory note as security merely for an antecedent debt, without any extension of time or release of other security, he does not become a bona fide purchaser. This is clearly because there did not pass from him. any sufficient consideration. But where there has been a discharge of an antecedent debt, as in Outhwite v. Porter, 13 Mich. 533, or an extension of time, as in DeMey v. Defer, 103 Mich. 239, and the other requisite conditions, the purchaser has been held a bona fide purchaser, for the reason that there did pass from such purchaser a sufficient consideration.
I do not agree with the broad statement of the Chief *534Justice that there is no distinction between a conveyance received in discharge of a debt, and one given as security merely, if it be meant by this a conveyance given as security, unaccompanied by any extension of time or surrender of other securities. See Williams v. Little, 11 N. H. 66; Bardsley v. Delp, 88 Penn. St. 420; Henriques v. Bank, 84 Mich. 168, 176; Burroughs v. Ploof, 73 Id. 607; 1 Smith, Lead. Cas. (8th ed.) 1215; 2 White & T. Lead. Cas. Eq. 33, 75, 83, 85, 86, 88.
The cases in our own Court do not sustain the contention that a discharge of a pre-existing debt may not be a good consideration to constitute one a bona fide purchaser. In Stone v. Welling, 14 Mich. 514, no such doctrine is announced. The facts in that case were that Welling received a deed, which, though executed after the-complainant's title accrued, was recorded first. The consideration of the deed to Welling is stated in the opinion to have been—
“An agreement by the firm of Welling & Root to give up to Hart, within 12 months from its date, judgments and notes against Hart and one Williams, both or either of them, to the amount of $450, including in that amount, their indebtedness to Welling & Root. There was also a conditional agreement to procure and give up to Hart. another note, of near a hundred dollars, held by oneHobert. Welling & Root at this time held a judgment against Hart & Williams, amounting to about $336, but whether there was any further indebtedness to them was not distinctly shown. Nothing appears to have been done towards performing this agreement with Hart after it was given."
So far from the case deciding that a discharge of an antecedent debt is not a sufficient consideration to constitute the creditor a bona fide purchaser, the opinion may be said to imply the contrary, for the Court take pains to point out that the facts do not make out that kind of a case. It is said:
*535"Nor do we think the agreement had the effect to discharge any indebtedness. It was executory in its character, covering, not only the claims of "Welling & Root, but also other claims to be procured by them, and upon which it cannot be claimed that the agreement itself would have any effect whatever. * * *
“But the question in this case is whether there was an actual payment of value for the land by Welling, before, notice of complainant’s mortgage; and, to make the agreement amount to such a payment, it must at least have been one which Hart, at the time, could have enforced as. a discharge against Welling & Root. The evidence shows, that the agreement was wanting in the consideration agreed, upon, since the land covered by the deed had previously heen incumbered by the mortgage to complainant.”
The case of Chadwick v. Broadwell, 27 Mich. 6, turned upon the question of whether the vendor stood in position to vest the purchaser with such possession as would constitute him a Iona fide purchaser. It was held that plaintiffs had given to Lester & Bundy such control over the logs as gave them the right to create a lien for sawing in favor of defendant; and, this being determined, the Court, proceeded to decide the question whether, by a purchase of the lumber in satisfaction of the claim of plaintiffs for the purchase price of the logs, plaintiffs had acquired priority over the defendant, as lien-holder. In determining this question, the Court say:
“We also think the circuit judge was right in holding that Mrs. Broadwell did not lose her lien by suffering the lumber to be placed on the Trowbridge dock. Under the agreement between Lester & Bundy and herself, the possession remained in her as much after it was transported to the dock as it did before. If she allowed sales and deliveries to be made to purchasers who were ignorant of her rights, the lien would thereby be waived to the extent of such sales, but not further.
“ But the plaintiffs claim that they were Iona fide purchasers, and, as such, were put in possession before they knew of any claim of lien. To this it may be replied that the whole transaction, as between them and Lester & *536Bundy, was by word of mouth only; no actual possession was taken by plaintiffs, and the attempt at a formal transfer of possession was ineffectual, because not made by the party in whom the possession vested. Mrs. Broadwell, in respect to the transaction, has been guilty of neither fraud, deception, nor negligence; the plaintiffs have paid nothing in consequence of it; and if their purchase fails, by reason of her insisting upon her legal rights, their debt against Lester & Bundy remains as before. And, in this view, We think it immaterial whether or not the plaintiffs, at the time they agreed to take the- lumber in satisfaction of their claim, had actual notice that Mrs. Broadwell insisted Upon a lien, as defendants claim it is proved by Chadwick^ testimony that they did. The nature of their own contract with Clewley was such as to permit him to have the logs manufactured, and consequently to create a lien thereon for the labor; and, if they dealt with his assignees afterwards in respect to the lumber, they were bound, at their peril, to ascertain either that the lien had been satisfied or waived, or, on the other hand, that the assignees had such possession of the lumber as to warrant the inference that no lien then existed.”
Neither was any such question as the sufficiency of a ■discharge of a past indebtedness as a consideration involved 'in Battershall v. Stephens, 34 Mich. 68. In that case the ■consideration paid was a present consideration. What was .said on this subject was therefore dictum, and what teas ■said was-:
“It has also been very often held in many courts of the highest character that, in case the consideration is merely a past indebtedness, the purchaser is not entitled to be regarded as a bona fide purchaser.”
The language was used in the course of an argument to show that want of good faith, in the sense in which it is used in connection with this rule, does not necessarily imply moral wrong. But it will be seen at a glance that this single sentence decides nothing, nor does it import that the Court necessarily approved the rule. Nor is it discoverable what rule is to be implied from the language, *537if any. "Was it intended to say that accepting security for past-due indebtedness, and giving time, does not constitute one a Iona fide purchaser, or, that in a case where the creditor has disarmed himself by the discharge of his -debt, he is not entitled to protection?
Boxheimer v. Gunn, 24 Mich. 372, is based upon Stone v. Welling, and contains nothing from which an inference can be drawn that the discharge of a pre-existing debt is not sufficient consideration. Kohl v. Lynn, 34 Mich. 360, and kindred cases, which establish the rule that before one may become a bona fide purchaser he must actually make payment, as well as contract to do so, and this before notice of prior rights or equities, clearly do not sustain the plaintiff’s contention here, or militate at all against the doctrine that the discharge of an antecedent debt is payment.
The New York cases are based upon Bay v. Coddington, 5 Johns. Ch. 54, 20 Johns. 637. In the case, as reported in 5 Johns. Ch., Chancellor Kent said:
“ The notes were not negotiated to them [the Codding-tons] in the usual course of business or trade, nor in payment of any antecedent and existing debt, nor for cash or property advanced, debt created, or responsibility incurred •on the strength and credit of the notes. They were received from E. and S., and after they had stopped payment, and had become insolvent, within the knowledge of J. and I. 0., and were seized upon by the Coddingtons as tabulo in naufragio, to secure themselves against contingent engagements previously made for E. and S., and on which they had not then become chargeable.”
In view of these facts, it is remarkable that in Dickerson v. Tillinghast, 4 Paige, 215, it was stated that it was held in Bay v. Coddington “ that the receiving of a negotiable note in payment of or security for a pre-existing debt, without any new consideration or other change of rights on the part of the persons receiving it, did not constitute them bona fide purchasers for a valuable con*538sideration, although they supposed that the person from whom they received the note had a perfect right to dispose of it in that manner,” and that in Stalker v. M’Donald, 6 Hill, 93, it was again stated that the holding in Bay v. Coddington was that “ where he [the creditor] has received it [the note] for an antecedent debt, either as a nominal payment or as a security for payment, without giving up any security for such debt which he previously had, or paying any money, or giving any new consideration, he is not a holder of the note for a valuable consideration, so as to give him any equitable right to detain it from its lawful owner.” Whether it should be said that the rule now established in New York is due to misapprehension as to what was involved for decision in Bay v. Coddington, two facts should be considered, in determining the weight to be given to these adjudications, the first of which is that the court make no distinction, in determining as to the sufficiency of a consideration to constitute one a Iona fide purchaser, whether dealing with a purchaser of a note or of chattels. See Lawrence v. Clark, 36 N. Y. 128; Weaver v. Barden, 49 Id. 286; Dickerson v. Tillinghast, supra. But a more conclusive reason why the New York cases should not be decisive here is that this Court early refused to adopt the New York rule, and established the contrary doctrine. In Outhwite v. Porter, 13 Mich., at page 539, it was said:
“ The New York cases are cited to the effect that a person taking negotiable paper for a precedent debt is not a holder for value, and that such paper, in his hands, is subject to the equities existing between antecedent parties. But the rule established by these cases was directly repudiated in this State more than 20 years ago, in Bostwick v. Dodge, 1 Doug. 413, which established directly the contrary doctrine. This case has been uniformly recognized as law by this Court, and we are entirely satisfied with the correctness of the principle upon which it rests.”
*539See, also, Hanold v. Kays, 64 Mich. 439, 446, in which it was said by Mr. Jnstice Morse:
“ The doctrine that the extinguishment oí a pre-existing debt is not a valid and sufficient consideration for the transfer of a negotiable instrument was repudiated in Bostwick v. Dodge, 1 Doug. 413; and it has ever since prevailed in our State that such discharge of a precedent indebtedness is as good a consideration, in such a case, as the payment of money, or the delivery of any species of property whatever.”
See, also, Baker v. Pierson, 5 Mich. 459; Shufeldt v. Pease, 16 Wis. 689; Blanchard v. Stevens, 3 Cush. 162; Williams v. Little, 11 N. H. 66; Burroughs v. Ploof, supra; and Henriques v. Bank, supra.
On the former hearing, I concurred in the reversal of the judgment, without stating my reasons. The circuit judge charged the jury as follows:
“ They [plaintiffs] could not rescind this sale, or recover in this suit, unless they show, by a preponderance of evidence, three things: In the first place, they must show to your satisfaction, by a preponderance of evidence, that the sale of this bill of goods, made by the plaintiffs to Smith & Hassock, was induced or brought about, in part at least, by fraudulent representations; * * * or else you must be satisfied that at the time Mr. Smith purchased the goods there was no intent on his part, or on the part of the firm, to pay for them. You must also find, in addition to that fact, in order to entitle the plaintiffs to recover, that Mueller & Eaber, who first purchased the goods from Smith & Hassock, were not purchasers in good faith, for a valuable consideration, — Iona fide purchasers, without knowledge that there was any fraud in the sale and purchase of the goods in the first instance. You must also find that the defendant, Lyman Feltus, was not a purchaser in good faith, and that he had knowledge of the fact of the fraud, or that such facts and circumstances came to his knowledge as to raise the presumption that he knew it, or to put him on his guard. If the plaintiffs fail to show any one of these three things, they cannot recover, and your verdict should be for the defendant.”
*540I think, under the circumstances of this case, if the plaintiffs established the fraud on the part of the purchasers, the burden is with the defendant to show that he was a bona ficle purchaser, or that his immediate grantors, Mueller So Raber, were. Berry v. Whitney, 40 Mich. 65; Letson v. Reed, 45 Id. 27; Carrier v. Cameron, 31 Id. 379; Schaible v. Ardner, 98 Id. 70; Whitaker Iron Co. v. Preston Nat. Bank, 101 Id. 146. ,
For the error in this instruction, the judgment should be reversed, and a new trial ordered.
Hooker, J., concurred with Montgomery, J.