Ludwig v. Highley

Bell, J. Notwithstanding the numerous errors assigned in this record, there are, in reality, but two questions of aiiy moment involved in the ease. The first of these is, whether, under the facts given in evidence, any beneficial interest in the premises in question passed to the plaintiffs, as the representatives of creditors, by virtue of the deed of assignment of 12th July, 1842 ? It was .in clear and uncontradicted proof on the trial, and so found by the jury, that although, up to the 1st of April, or, possibly, the 27th of May, 1842, the legal estate in the land and messuages known as the Gulf Mills, was vested in Jacob Freedley, the assignor, by virtue of the deed from James Wells to him, yet the beneficial interest always resided, by way of resulting trust, in John Freedley, at whose instance, and for whose benefit, Wells purchased the land at sheriff’s sale. It is put beyond controversy, that Jacob Freedley, up to the moment of the delivery of his deed of release to John, was, as Wells had been before him, a naked trustee, holding the legal title as a mere depository for the use of his brother, and that he managed the property solely for the benefit of that brother. On one of the days just mentioned, and in the view I have taken of this case, it is immaterial which, Jacob, upon the request of John, divested himself of the legal title by a conveyance duly executed to John, in whom the legal and beneficial interest thus became united. As there is no allegation of actual fraud attaching upon this transaction, and as it took place nearly two months prior to the execution of the deed of assignment under which the plaintiffs claim, it would seem to result, necessarily, that Jacob, the assignor, had no interest of any kind in the premises, which, by any possibility, would pass to his assignees by virtue of the assignment. As between the immediate parties to the deed, such was, incontrovertibly, the case. The assignees, being mere volunteers, are regarded but as the. agents of the assignor, standing in his place, and' consequently, as a general rule, take only such rights and interests as he himself had and could claim, at the time of the assignment made i — 138 — Mitchell v. Winslow, 6 Chand. Law Rep. 347; 2 Story’s Eq. sec. 1411; Pierce v. McKeehan, 3 Watts & Serg. 283, 284; Luckenbach v. Brickenstein, 5 Watts & Serg. 149; In re Wilson’s Accounts, 4 Barr, 430. Such a voluntary assignment by a debtor is, in this respect, like the assignment of a bankrupt or insolvent, which passes nothing more than they possessed or enjoyed, and under which the assignee takes their rights, precisely in the same plight and condition as they themselves respectively had them; Mitford v. Mitford, 9 Ves. 100; Worrall v. Marlar, 1 P. Wms. 459, in notes; Like v. Beresford, 3 Ves. 506. Nor would the assignment in hand, in the absence of any superadded act upon the part of the creditors, have operated, beyond this, to pass a beneficial estate, had the deed of release from Jacob to John Ereedley never been made, for the assignees, at most, would have taken the legal estate in the land, burdened with the equity to which it was subject in the hands of the assignor; Twelves v. Williams, 3 Whart. 485; Wolf v. Eichelberger, 2 Penna. Rep. 346; Knowles v. Lord, 4 Whart. 500 ; Vandyke v. Christ, 7 Watts & Serg. 373. It would be thus a barren acquisition, productive of no fruits, for Jacob Ereedley never had any such estate or interest in the property in controversy, as by the mere exertion of his will could be made beneficially available to his creditors, by a conveyance. To have attempted this, whether before or after the making of his deed of release to John, would have been such a fraud in him as the law will not, gratuitously, impute to any one. It is difficult, therefore, to perceive upon what principle his deed of assignment shall be made to operate a conveyance of that which was not his, without the slightest manifestation of an intention, on his part, that it should have this effect, so far as intention is to be gathered from the face of the deed itself. But his creditors claim superior to his intention. Speaking through the plaintiffs, they assume to have placed themselves in the position of Iona fide purchasers for a valuable consideration, in relation to the land in contest, without notice of the secret trust, or of the deed of release from the trustee to the cestui que trust, which was not put on record within six months after its execution, nor until long after the execution and delivery of the deed of assignment. In this character, they insist they are entitled to stand unaffected by the latent equities which existed between Jacob and John Ereedley, and are protected against the legal operation of the deed from the former to the latter, by the recording act of 1775. A short examination of these pretensions will, I think, show them to be unfounded. The creditors rest their claim to be considered and treated as purchasers — 139 — for value, and so entitled to every protection which equity and the law affords to such a purchaser, on the ground, that before notice, of John Freedley’s interest in the particular tract of land, they had acceded to the assignment by an acceptance of its conditions and terms, manifested by a release of the debts due from the assignors to them, respectively. That such releases will turn creditors into purchasers seems to be denied by Sergeant, J., in Knowles v. Lord, though a different opinion is incidentally expressed by Rogers, J., In re Wilson’s Accounts. Many intimations have been thrown out by different judges upon this point, but I believe it has never been expressly ruled in this state, in reference to a general and voluntary assignment for the benefit of creditors, like the present. But if it be conceded that an acceptance of the conditions of such an assignment by creditors, shown by an unqualified release of the debts severally due to them, entitles them to stand as purchasers in respect to the estates and things assigned for their benefit, and which constitute 1 the moving consideration for the release, how can it be said to work this effect in respect to things which clearly were not comprehended by the terms of the assignment? It has been shown, I think satisfactorily, that the' Gulf Mills did not, immediately on the execution of the assignment, pass to the assignees, simply because it was not a part of the assignor’s estate, real, personal, or mixed. But it is said that, as it appeared from record evidence, and a possession apparently consistent with it, that the debtor had the beneficial and legal interest in the land, at the time of his assignment, which was not divested by any conveyance of which his creditors had notice, it was competent to them to consider it as still residing in him, and to act upon the assumption of its being a part of his estate, subject to the terms of the deed of assignment. If this be admitted, I do not think it adds any strength to the claim of the plaintiffs. The only action the creditors have exerted, in reference to the assignment, is to be found in their covenant to execute releases, at a future day. Now one of two propositions, upon the subject of this covenant, must be trueq namely, that at the time they enter,ed into it, they either had or they had not in contemplation, as a part of the fund assigned for their benefit, the premises so often mentioned. If it was not so in their contemplation, then it formed no part of the consideration from which their covenant sprang. Giving the principle they invoke, the most liberal extension in their favour, it goes no further than this, that in order to vest them with an equity, as purchasers, superior to the title of the true, though secret owner, it must be — 140 — shown that they purchased the land, claimed as passing by the equitable force of the assignment, by some sacrifice made, or advantage relinquished, in direct and intelligent reference to it. That this is so, is fully shown by the reasoning of this court in the Petrie v. Clark, 11 Serg. & Rawle, 377; Hartman v. Dowdel, 1 Rawle, 279; and Twelves v. Williams. The utmost that can be said is said in the case last cited, “ that the extinguishment of a debt is a valuable consideration for a thing taken in satisfaction of it.” But how can that be said to be taken in satisfaction of an extinguished debt, of which the creditor did not suspect the existence at the time he consented to the extinguishment, and which did not, in fact, belong to his debtor ? Regarding the transaction in this aspect, the argument may be thus stated. We, say the plaintiffs, as the representatives of the creditors, looking to the assignment, and without knowing the particulars of which the property of Jacob Freedley was composed, became the purchasers of all his estate, real, personal, and mixed, by agreeing to release our debts upon recovering the avails of that estate. Very well, answer the defendants, you are entitled to all the assignor’s estate, of every description that will pass by general words, but the land you now seek to recover formed no part of his estate, at the time of the execution of the deed of assignment, and having relinquished nothing because of it, of course you cannot claim to have it by force of that conveyance. You do not stand in relation to it as would a purchaser without notice, by specific description, and for a specific consideration. But take the other- proposition to be correct, that, misled by the recorded deed from Wells to Jacob Freedley, and his possession .under it, the creditors acted upon the belief that the premises in dispute belonged to their debtor, and were thus induced to enter into the covenant stipulating for a release. In that case it is plain there is a failure of consideration to the full value of the land, which would avoid the releases, at least pro tanto, had such been executed with an observance of every legal form. In this view of it, the position of the creditors is not that of an innocent purchaser, who has taken a conveyance and paid his money. Their attitude is that of one who has received notice of a latent equity, affecting the estate purchased, before parting with the purchase-money, and notice before payment of the consideration is sufficient to defeat the equity of the purchaser, for a court of chancery will relieve him against the payment; Union Canal Co. v. Young, 1 Whart. 431; Lewis v. Bradford, 10 Watts, 67, 82. In this instance, if there has been a failure of consideration, the creditors have done nothing that — 141 — may not be recalled, or rather the law, coming to their aid, discharges them from the obligation of their contract, at the very least, to the extent of the failure. If there has been a fraudulent representation by the assignor, or even a studied silence, by which the creditors have been deceived, their covenant may be avoided altogether. Whether, then, they acted or did not act, upon the supposition that the land sought to be recovered was of the estate of Jacob Freedley, is wholly indifferent, so far as the object of this action is involved. Upon either supposition they are without merits as against the true owner. The case has, hitherto, been considered as if releases were actually executed. But what has been said acquires additional force when applied to the fact that each of these creditors has gone no further than to contract for the extinguishment of his claim when his proportion of the avails of the assigned property shall be paid to him. Being executory, and resting in contingency, it is of no value until the precedent condition be performed, which is to clothe it with a binding effect. But the plaintiffs further aver, that the debts due to the creditors were contracted by the assignors, whilst Jacob Freedley was the ostensible owner of these premises, and, by the sufferance of John, in the actual possession and occupancy of them, whereby he was placed in a position to deceive the world, and thus acquire a false credit. Admitting this to be so, the second question presented is, whether, in the absence of an actual fraudulent design entertained by the brothers, the possession of Jacob confers upon his creditors a beneficial interest, which otherwise they would not have taken under the assignment ? The principle which forbids the divorce of the real ownership, and the actual possession of personal chattels, has never been extended to corporeal hereditaments. That principle rests on the impolicy of permitting collusive transfers of the legal ownership, which would put the property beyond the reach of the debtor’s creditors, rather than on the ground that a false credit is given by a retention of possession. But this species of legal fraud, which may vitiate a real transaction, is, in its operation, strictly confined to the case of a sale or pledge of chattels. ■ For obvious reasons, it would produce the most mischievous consequences to apply it to the possession of lands. The most usual mode by which real property is enjoyed, is by permitting others to occupy it, and it has never been thought, in the absence of actual fraud, that so far as third persons are concerned, it makes any difference whether the occupancy be by virtue of a demise for years, or under an ab — 142 — solute conveyance, coupled -with a secret, bona fide trust. To hold otherwise would be materially to interfere with, in a great variety of cases, this species of equitable estate, which our laws distinctly recognise. Our books furnish numerous instances in which the possession of trust property remained in the trustee, and yet, until now, it has never been claimed that such possession subjected the land to the burden of his debts. In the case of personal chattels, possession is said to be the only indicia of ownership to a stranger, but this cannot be said of hereditaments. In short, the reasoning applicable to one species of property is wholly inapplicable to the other, and cessante ratione legis, cessat ipsa lex. To introduce a new rule of property, without some stringent reason calling for it, would be utterly unjustifiable. We perceive, therefore, no error in the refusal of the court below to instruct the jury, as requested by the plaintiff, on this point. The settlement of these two questions covers the whole case, and, without entering upon a particular examination of the charge of the court below, justifies the conclusions at which it arrived. There is nothing in the remaining errors assigned calling for special notice. Indeed, these were not urged on the argument. Judgment affirmed. Burnside, J., was absent during the argument of this case.