Peabody v. Fenton

The Chancellor. There can be no doubt, from the evi dence in this case, that Fenton obtained the assignment of the bond and mortgage, from the complainant, by false pretences; amounting not only to'a gross fraud but also to a felony, under the provisions of the revised statutes. And the complainant did no act to ratify that transaction after he was aware of the fraud. It also appears from the testimony that -Downer & Rogers, even if they had no reason to suspect some unfairness in the transaction, so a§ to make it their duty to inquire of the assignor whether Wyckoff was the real owner of the bond and mortgage, paid in money and property, at the extent, thirty per cent less than the amount actually due upon the bond and mortgage. If they were entitled to protection, therefore, as bona fide holders and purchasers without notice, they, or those to whom they procured the transfer to be made in payment or security for an antecedent debt, could not in equity be permitted to retain the bond and mortgage for the full amount due thereon; but only to the extent of the value of the property, &c. which was paid for the same. The vice chancellor has placed his decision solely upon the ground that the obtaining of the assignment from the complainant, with intent to. defraud him, is-a felony by the revised statutes. In the case of Mowry v. Walsh, (8 Cowen's Rep. 238,) which was decided before the adoption of the revised statutes, the, supreme court held, in-conformity with, my decision at the circuit, that where the purchase of goods was obtained by false pretences, -and by means of a forged, recommendation, of the character and responsibility of the purchaser, but not feloniously, a subsequent bona fide purchaser, of the goods, from the fraudulent vendee, for a full consideration, and without notice [463] of the fraud, was entitled to hold such goods - as against" the original owner. That decision "was based upon the principle that, where one .of two innocent persons must necessarily suffer by .the wrongful act of a third person, the. loss should fall upon the one of t "n who by his own voluntary act or negligence has'enabled the wrongdoer to produce the -injury. At the time that decision was made, the obtaining of money or goods' by false pretences, with iritention to defraud the owner, was a criminal offence punishable with imprisonment in the state prison, or in the county gaol, in the discretion of the court. But it was not a felony at the common law; nor had it then been made a felony by statute. A similar decision was made by the court of king’s bench in England, in the case of Parker v. Patrick, (5 Term Pep. 175;) where the obtaining of money or goods by false pretences was punishable by transportation, or by fine or imprisonment, in the discretion of the court. But the revised statutes having declared all offences which render the offenders liable to imprisonment in the state prison to be felonies, the supreme court subsequently held that the power of the fraudulent vendee to transfer a valid title to the property; to a bona fide purchaser without notice of the fraud, no longer existed. (Andrews v. Dieterich, 14 Wend. Rep. 36.) I am inclined to doubt whether this is a correct view of the operation of this provision of the revised statutes. For I apprehend that the principle upon which the decisions in Mowry v. Walsh and Parker v. Patrick were sustainable, was not the mere fact that the offence which the first vendee of the property- had perpetrated; in obtaining it, was not technically a felony; but.that the possession of the property and the apparent ownership thereof, by such vendee, was the voluntary act of the original vendor, and-that the latter had not lost the possession by theft or robbery. Without expressing any definite opinion upon. this, question, however, I think the decree appealed from is sustainablempon other.grounds.. Even in the case of negotiable.paper which has béen lost by the owner, or which has been obtained from him'by fraud or by larceny, the holder thereof cannot,retain it, as against the rightful owner, where he received-it under circumstances which -were [464] calculated to throw a suspicion upon the right of the person from whom he received it to dispose of it as his own. Purchasing a security under such circumstances is gross negligence. Here Downer & Rogers purchased a bond and mortgage which from the inquiries made by them, they must have known tobe perfectly well secured; and upon which it appeared by the endorsements that $2000, and the annual interest, had been paid as the payments became due; they paying three'-fourths of the actual value of these securities in unsaleable goods, at forty per cent above their market value, and out of the usual course of business. The fact that the pretended "owner of these securities was willing to make such a sacrifice, and for articles which he did not intend or wish to use himself, but which were immedi ately to be sent to an auctioneer- to be sold, was sufficient to sat • isfy any reasonable man that the vendor was probably selling what was not his own. Downer & Rogers ought not, therefore, to have made the purchase without inquiring from the original assignor whether Wyckoff was in fact the real and bona fide owner of these securities. Their negligence in not making some inquiry on that subject was at least equal to, if not greater than, the negligence of the complainant in intrusting an assignment of the bond and mortgage to Fenton, as an escrow, to be delivered to Wyckoff the supposed purchaser, when the money should be paid by him. The principle upon which the decision in the case of Mowry v. Walsh was based, therefore, was inapplicable to the circumstances of this case. Again; to protect a party as a bona fide purchaser without notice, he must have acquired the legal title as well as an equitable right to the property. That was the case in Mowry v. Walsh and in Parker v. Patrick. For in each of those cases the original owner of - the property had made an absolute sale thereof, which sale had been consummated by an absolute delivery to the purchaser. And the sale, although voidable by the vendor, at his election, on account of the fraud, was still valid until rescinded by him. It was therefore like the case of a conveyance of land obtained by fraud, which is also voidable at the 1 election of the grantor; and where the fraudulent grantee has the [465] power to transfer a valid title to a bona fide purchaser without notice of the fraud. But if such bona fide purchaser has not obtained the legal title, by an actual and valid conveyance, he cannot protect himself against the prior equity of the original owner to rescind the conveyance to the fraudulent grantee; although such bona fide purchaser has a contract for a conveyance, and has actually paid for the land. (Wigge v. Wigge, 1 Atk. Rep. 384; 1 West’s Rep. 680, S. C. More v. Mayhem, Freem. Ch. Rep. 175. Tourville v. Nash, 3 Peer Wms. 307.) In the case under consideration there never was an absolute and unconditional delivery of the assignment to Fenton, as the professed agent of Wyckoff. But it was put into his hands to be delivered upon the actual payment of the purchase money. Wyckoff, therefore, never was the legal assignee of the bond and mortgage, so as to have a valid title at the election of the complainant. And as Wyckoff was an infant, and never authorized Fenton to act as his agent, there was no agreement on his part to become the purchaser of the bond and mortgage. As an infant, he was also incapable of transferring a valid title to the bond and mortgage to his assignees ; especially as he, never in fact obtained any part of the consideration which Fen-ton received upon the sale to Downer & Rogers. Even if the legal title to a mere chose in action was capable of being transferred by assignment, therefore, these supposed transfers were insufficient for that purpose. The legal title as well as the prior equitable right to this bond and mortgage being in the complainant, he was entitled to the relief granted by the vice chancellor. The decree ap pealed from must therefore be affirmed, with costs.