Court Opinion

ID: 6693628
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:43:37.828584+00
Date Added: 2024-06-11T16:01:10.804730
License: Public Domain

Avert, J.
(dissenting): It is the universal rule, to which the search to find au exception in cases adjudicated in our own Court or elsewhere, will be in vain, that the grantor in a fraudulent deed, whether it be absolute in form or a mortgage, is not allowed in courts of law or equity to impeach his own conveyance for covinous conduct, in which he has been a participant and has been ■equally guilty. Such deeds are declared to be good inter *543partes in the sense that neither can ask to set them aside for fraud, in equity, because of the necessity, as a general rule, of disclosing his own turpitude, and in law, because the grantor is estopped to impeach his own deed. This proposition is supported by a consensus of opinion in all courts that administer the principles of law and equity as derived from England. Brady v. Ellison, 2 Haywood, 348; Vick v. Flowers, 1 Murphy, 321; Jackson v. Marshall, 1 Murp., 323 ; Pinckston v. Brown, 3 Jones Eq., 494; Powell v. Ivey, 88 N. C., 256; York v. Merritt, 77 N. C., 213; Same v. Same, 80 N. C., 285; Westfall v. Jones, 23 Barb., 9; Brookover v. Hurd, 1 Metcalf (Ky.) 665; Miller v. Markle, 21 Ill., 152; Bispham Eq., Sec. 244; Swan v. Scott, 1 Serg. & R., 155; Evans v. Dravo, 12 Harris,-; Williams v. Williams, 10 Casey, 312.
In the case of York v. Merritt, supra, at page 290, the Court say: “They are in pari delicio and this Court in the exercise of its equitable jurisdiction cannot interfere to give relief.” That was an action brought by the plaintiff for the possession of land, where the defendant sought to set aside the deed on the ground that it was intended as a mortgage,, but was executed to defraud the defendant’s creditors. The Coxirt said (page 289): “If the intent of the parties in making the deed was to defraud the creditors of the defendant, it would make no difference whether the deed was intended as a mortgage or an absolute conveyance.” In the case of State v. Bevers, 86 N. C., 588, this Court announced the general principle that where a plaintiff alleges an equity that entitles him to relief, without disclosing any turpitude on his part, then, prima facie, he is entitled to recover; but where it becomes necessary to state, as a part of his cause of action, that it originates in or is dependent upon the enforcement by the Court of an illegal-or fraudulent contract the maxim ex turpi causa non *544oritur aotio applies, and the Court withholds its aid. Bishpam’s Eq., Sec. 248; Bonesteel v. Sullivan, 104 Pa., 9; Gill v. Henry, 95 Pa., 388; Bigelow on Fraud, p. 206; Harris v. Leador, Cro. James, 270; Findlay v. Cooley, 1 Blackf., 262.
Bigelow, in his work on fraud, pages 206 & 207, says: “And the test, whether a demand connected with an illegal transaction is capable of being enforced has often been said to be, whether the plaintiff requires the aid of the illegal transaction to establish his ease. If the plaintiff cannot open his case without showing that he has broken the law, the Court will not assist him. If, on the contrary the plaintiff can establish his (prima faeie) case without showing the illegality of the acts of the parties, he can recover. There is however, according to other Courts, a marked distinction between executed and executory contracts of a fraudulent character,where both parties are guilty. The principle is the same that the Courts will not lend their aid. The executed contract must therefore stand executed, becaue the Courts will not interfere; while the execu-tory contract must fall for the same reason.”
“ By common law (says Waite, in his work on-fraudulent conveyances, Sec. 129, p. 593) no person is permitted to take advantage of his own wrong. In such cases the doctrine in pari delicto applies and where property has been fraudulently conveyed to a grantee he will be permitted to retain it as against the grantor, not from any merit of his own but because the law will not lend its aid to a party seeking to set aside his own fraudulent act. So equity will not decree a specific performance of an agreement by a fraudulent grantee to reconvey the property to the debtor.”
In Williams v. Williams, supra, it was held that “ in a suit upon a mortgage against the administratrix of the mortgagor, the latter will not be permitted to set up as a *545defence that the mortgage was given with the fraudulent intent of covering the property from creditors in case of embarrassment of either of the parties to it.”
The doctrine, when fully and properly stated, is that, whenever it becomes necessary for either of the parties to an executed cenveyance to invoke the aid of a court of equity on the ground that it was executed for a' fraudulent purpose, in which it appears both were equally guilty participants, the Court will refuse the aid asked and will leave the parties in the same position as to the enforcement of their rights that they would have occupied had there been no disclosure of the fraud. In our case had not the defendant set up the fraud and asked the interposition of the Court on that ground, the plaintiff having established, as Bigelow says, his prima facie case without disclosing his guilt, was entitled to recover. To leave the Bank as it stood before the court prior to the introduction of the fraudulent transaction, was to concede its right to a decree of foreclosure. The principle is substantially stated in two cases relied upon by the plaintiffs counsel on the argument. Bonesteel v. Sullivan, supra, and Gill v. Henry, 95 Pa. St., 388. In the former case (Bonesteel v. Sullivan) the Court held that, the deed being good inter partes, a mortgagor could not defeat the recovery of the mortgage in a bill for foreclosure by disclaiming for the first time in the answer a common intent of both parties to defraud other creditors of the mortgagor. In the case of Gill v. Henry, supra, the Court declared that upon the same principle the mortgagor, where the mortgagee did not in his bill for foreclosure disclose the fraud, could not set up or prove on the trial an agreement between the parties, like that relied on in the answer here, that the deed should be withheld from registration in order to defraud other creditors.
“The person who attempts to cheat others has no right *546to complain if be bimself is cheated.” Waite, supra, p. 2Ó 7. Adrian & Toilers executed a contract upon which the plaintiff has shown prima facie its right to the judgment demanded. The defence attempted to be set up by the assignee, (who, as will presently appear, stands in the same relation to the plaintiffs as the assignor) involves the first- averment of the turpitude, out of which no right can arise in law or equity. As it does not lie in his mouth, after taking with notice of the mortgage, to avail himself of such a plea, the Court must deal with the cause as though the fraud had never been mentioned. "When Bryan, the assignee seeks to avoid the deed by showing its fraudulent character, he is confronted by the rule laid down in Ellington v. Currie, 3 Neb. Eq., 31, that apourt of Equity allows only creditors and not “the party or those claiming under him” to impeach them under 13 Eliz. It is plain that, unless the assignee has some right conferred by statute, he stands both in a Court of Law and a Court of Equity in the shoes of his grantor or assignor, and is estopped both in law and in equity as effectually from impeaching the deed of his assignor as'his own prior deed for the same property.
The case of Turner v. Eford, relied upon by the defendant’s counsel, fails to come within the principle which is decisive of that at bar, for the reason that there the heirs-of Turner, who filed a bill to enjoin the execution of a writ of possession, claimed under no deed; but the heirs-at-law of Eford had recovered upon the conveyance to their ancestor in an action of ejectment. They were not precluded as are Adrian & Toilers and their assignee by their own deed or their answer, from setting up and proving the fraud. Having the right to avail themselves of that defence, when the allegations of their answer were admitted, the Court of Equity left the parties as they *547stood — the defendants with judgment for possession and a writ in the hands of the Sheriff. The confusion that seems to have arisen about the application of the principle to actions for foreclosure, seems to be due to the erroneous idea that either party forfeits his claim to relief by simply going into equity, when in reality a party is entitled to demand any judgment in law or equity to which he can establish his right without relying upon the fraud as a ground of the relief sought.
The only remaining question is whether he is at liberty to attack as a purchaser under 27 Elizabeth. The statute (Code, Secs. 1545 and 1546) which are substantially the same as 13 and 27 Elizabeth, except that the Act of 1860 so amended the latter as to limit its operation to purchasers both for full value and without notice, give to creditors of bargainors or mortgagors, and to such purchasers of their interests, but not to the bargainors or mortgagors themselves, the right to impeach conveyances on the ground that they were executed to hinder, delay or defeat or defraud creditors or such purchasers. The controversy is narrowed down therefore to the question whether E. 3L Bryan, the assignee, is a purchaser for value and without notice of the claim of the plaintiff under the older conveyance. None of the creditors are parties, though they might have been made or might have asked to be made defendants in the cause. It may be true that the rule defining the relative rights of mortgagor, mortgagee and trustee or assignee of the equity of redemption, have been somewhat modified by recent decisions of this Court. Wallace v. Cohen, 111 N. C., 103; Southerland v. Fremont, 107 N. C., 565; Cowen v. Witherow, 112 N. C., 736. But the doctrine that such an assignee in a general deed to secure creditors is “a purchaser within 13 and 27 Elizabeth” and takes subject only to such equities as attached to or bound land in the hands *548of the debtor, has remained undisturbed since it was first formally announced. Potts v. Blackwell, 3 Jones Eq., 449; Small v. Small, 74 N. C., 16; Wallace v. Cohen and Southerland v. Fremont, supra; Brem v. Lockhart, 93 N. C., 191; Branch v. Griffin, 99 N. C., 173. If Bryan is to be deemed a purchaser subject onty to the restriction mentioned, what superior equities to those of the creditors, whom he represents, are shown to have attached before the conveyance to him ? The averments of the answer being-admitted by the demurrer, the Bank cannot be deemed to have acquired any equitable rights either as against creditors or such purchasers by the covinous conspiracy to give to Adrian & Toilers a false credit and then to deprive those, who should fall into the trap, of the right to subject the property, which was the basis of the credit extended to them. Some more rigid rule than any founded upon the benign principles of equity must be invoked in order to postpone the claims of these creditors, represented by Bryan, to those of the plaintiff, admitted to have been acquired, if at all, by a conveyance intended by both parties to perpetuate a gross fraud upou the rights of subsequent purchasers as well as subsequent creditors.
But however reprehensible in any aspect, and violative of the rights of the creditors represented by Bryan, the admitted covinous arrangement between the Bank and the defendants Adrian & Tollers may have been, ive find a difficulty that seems insuperable, in the way of conceding to him as subsequent assignee the right to attack the mortgage deed. Bryan admits in his answer that it was “registered on the 19th day of June, 1893, and that-the deed of assignment is correctly set out in the complaint, where plaintiff alleges that it bears date June 20, 1893.” The mortgage deed having been registered on i the day before the deed of assignment was executed, Bryan as assignee *549took with constructive notice of it and of everything contained in it. Robinson v. Willoughby, 70 N. C., 358; Parker v. Banks, 79 N. C., 480; Wharton v. Moore, 84 N. C., 479, 2 Pom. Eq. Jur., Sec. 692; Ibid, Sec. 655 (4). In Triplett v. Witherspoon, 70 N. C., 589, Pearson, C. J., cites Hiatt v. Wade, 8 Ired., 380, and quotes from the opinion of Ruffin, C. J., as follows : “ The statute, 27 Eliza., enacts that conveyances of land, made with intent to defraud purchasers shall, only as against purchasers for good consideration, be void. Under that act it was of course held that notice of the fraudulent deed did not impeach the title of the purchaser, because the bad faith of the deed vitiated it, and with the notice of the deed the purchaser had also notice of the fraud. But the legislature thought proper in 1840 to alter the law and declare that no person shall be deemed a purchaser within the meaning of the former act,.unless he purchase the land for full value thereof without notice at the time of his purchase of the conveyance alleged by him to be fraudulent.” Triplett v. Witherspoon, 74 N. C., 475.
The distinction which the learned counsel for the defendant attempts to draw between the rights of the assignee in a court of law and in a court of equity, has not been recognized by this Court. The rule as laid down in a court of equity in Ellington v. Currie, supra, and as applying to cases where such relief is asked under the Code practice in York v. Merritt, supra, is, that not only are parties estopped from attacking their own deeds as fraudulent, but those in privity or holding under them, which is a synonymous expression, are also as fully concluded as the grantor. Bryan, assignee, claims title to the equity of redemption by virtue of the deed from Adrian & Toilers, and therefore comes within the general rule in courts of law and equity, unless such deeds are declared void as to him by the statute *550(Code, Sec. 1546). We have seen that he is not such a purchaser as can claim the right to attack under that section. Having taken “ before and at the time of purchase ” with notice of the mortgage deed, it is clear then that Bryan is not at liberty to impeach it.
The other creditors secured by the assignment not being parties, we think there was no error in granting the decree of foreclosure. Why they have not been made parties to this cause, or have not instituted another suit, we are not informed. Unless the admission of the allegations of the answer by demurrer was merely a pro forma act, intended to raise the question, it would seem that the mortgage deed might have been successfully assailed by them, either as defendants in this or plaintiffs in an independent action.