Spira v. Hornthall, Whitehead, Weissman & Co.

CLOPTON, J. The instructions given and refused present, as the first question raised by the assignment of errors, whether the payment or satisfaction of an existing debt is a consideration sufficient to defeat the vendor’s right of recovery against a purchaser without notice from a fraudulent vendee. The sale of the entire stock of goods, whether in the usual course of trade or otherwise, is a matter addressed to the jury in determining the bonafides of the transaction, and is not presented by the record for our consideration. Though of comparatively modern origin, the doctrine is now firmly grafted on the jurisprudence of both England and this country, that a vendor, induced by misrepresentation, or fraudulent concealment, to sell goods to a purchaser who is insolvent, and has no intention to pay for them, may disaffirm the sale, and reclaim the goods, as against the fraudulent vendee, or any person claiming under him with notice of the fraud. The rule is founded on the requirements of honest and fair dealing; and as said by Stone, J., is “a growth upward in commercial morals.” It rests on the fundamental principle, that no person can, in good conscience, be allowed to take and retain the property of another, without paying the consideration price, or without a [144] bona fide intention, at the time of purchase, to pay for it. There can be no question of the plaintiffs’ right of recovery, if the controversy were between them and their vendee. 2. The vendor, on acquiring knowledge of the fraud, must promptly disaffirm the sale. The supervening right of a purchaser from the fraudulent vendee, for value, and without notice of the fraud, is superior to the equity of the original seller, and operates to defeat his title to the goods sold. This is on the familiar principle, that where one of two innocent persons must suffer from the wrongful act of a third person, the burden must fall on the one who puts it in the power of such third person to perpetrate the Wrong. To entitle a sub-purchaser to protection, he must be without notice of the fraud, and' must have parted with something valuable on the strength of the property, and on the faith of the possession and apparent right to sell of his vendor. The goods sued for were sold by the plaintiffs to Yogel, in October, 1883, and were sold by him, with the balance of his stock, to Bernstein and Mrs. Schonfeld, on December 1, 1883, in consideration of the satisfaction of a precedent indebtedness of $13,000, and an agreement in writing to pay certain notes, of the aggregate amount of $14,000, on which they were indorsers for Yogel, and to protect him against any liability to pay any part thereof. Bernstein and Shonfeld subsequently sold the stock of goods to defendant, the consideration being a check for several thousand dollars, and negotiable notes for the remainder of the purchase-money. If Bernstein and Shonfeld, and the defendant, or either of them, were purchasers for value without notice, the plaintiffs are not entitled to recover. 3. Counsel for appellees rely on the rule, as held in Loeb & Bro. v. Peters, 63 Ala. 243, which was a case of stoppage in transitu, and in Loeb & Bro. v. Flash Brothers, 65 Ala. 726, which was a case similar to this. In each it was held, that entering a credit for the value of the property on the past-due account of an insolvent debtor is not a sufficient consideration to defeat an action by the defrauded vendor. In the latter case it is said : “Merely entering a credit on an account past-due, without surrendering anything valuable, would not, under any circumstances, constitute them bona fide purchasers, so as to defeat an action such as this.” The reason is 'stated in the first case, where it is said, the purchaser has nothing more to do, in order to get even, than to debit his vendor with the same sum, for non-delivery of the goods, in consequence of the defect in title. The purchaser, in neither case, changed his position, or parted with anything valuable. It is settled doctrine in this State, that “ receiving negotiable paper in payment of a precedent debt can not be distinguished [145] from purchasing it with money, or taking it in payment for property sold; and when it is so received, it is taken in the usual course of trade, and the holder is entitled to protection ” against latent equities between the original parties.- Reid v. Bank of Mobile, 70 Ala. 199 ; Bank of Mobile v. Hall, 6 Ala. 639. While a mortgage given to secure an antecedent debt, the mortgagee parting with nothing of value ingpresenti, is insufficient as protection against outstanding equities; if the consideration of the mortgage is the security of a debt based on an extension of the time of payment, the mortgagee is a purchaser for value, and, if innocent, is entitled to protection. And the payment of an existing indebtedness is a sufficient consideration to maintain and uphold an absolute conveyance, there being no secret trust or benefit reserved, against the claims of other creditors of the debtor, though he is insolvent, and the known effect is to leave him without means to pay his other debts. Whitfield v. Riddle, at present term; Rogers v. Adams, 66 Ala. 600; Crawford v. Kirksey, 55 Ala. 282. A purchaser who parts with value, either in money, securities, or other property, or who, by the transaction, materially changes his position to his consequent detriment, on the faith of his vendor’s clear right of sale, is entitled to be protected against latent equities of which he had no notice.— Whelan v. McCreary, 64 Ala. 319. It is insisted in the argument of counsel, that the rule which prevails when the property received in payment of a precedent debt is indisputably the property of the debtor, which he has an undoubted right to apply to the payment of his honest debts, is inapplicable, where the property has been obtained by fraud, and it is subject to the right of the seller to retake it on discovering the fraud. The inapplicability of the rule is based on the general doctrine, that “no one can transfer to another a better title than he has himself.” To the general doctrine there are well recognized exceptions, one of which is, “when the owner, with the intention of sale, parts with the property, though under such circumstances of fraud, as would authorize him to reclaim it from the vendee.” — Leigh Bros. v. Mo. & O. R. R. Co., 58 Ala. 165. When the intention is to transfer both possession and property, it is a contract of sale, and the property passes, however fraudulent may have been the means used to effect it. The contract is hot void ab initio, but voidable at the election of the seller. But, until he elects to avoid, “ if his vendee transfers the goods, in whole or in part, whether the transfer be of the general or of a special property in them, to an innocent third person for a valuable consideration, the rights of the original vendor will be subordinate to those of such innocent third person.” — 1 Benj. on Sales, §§ 648, 649. [146] The innocent purchaser is without fault; he acts on the faith of ostensible ownership, and right of disposition, on which he is authorized to repose, there being no attendant suspicious circumstances. The owner, by the contract of sale, has clothed his fraudulent vendee with all the indicia of ownership and right of sale. A purchaser may buy with equal confidence and safety, where the appearances of ownership, created by the original owner, are such as to produce a reasonable belief of its actuality, as also where it is in fact absolute and unconditional. We discover no satisfactory reason why the rule of protection, which is extended to a creditor receiving negotiable paper, or an absolute conveyance of property admitted to be the debtor’s, should not be equally available to a purchaser from a fraudulent vendee, whether such vendee accepts a conveyance of the property with intent to defraud the creditors of his grantor, or obtains it by fraudulent devices, from his vendor. As said above, we held in Loeb & Bro. v. Flash Brothers, supra, that merely entering a credit on a past-due account, for the value of the property, is not a consideration that will constitute the creditor a purchaser for value, for the reason, that it is not, on failure of the creditor to obtain or retain the goods, a payment. The distinction is between an agreement to receive goods in payment of an existing indebtedness, and an actual satisfaction of the indebtedness ; as where the creditor, by the purchase, materially changes his position, and gives up something of value on the strength of the property, such as a surrender of the evidences.of indebtedness, or prior security. If the creditor’s title should fail, by reason of his debtor’s fraud in getting the goods, his debt still remains unsatisfied, and the right of the original owner to avoid his sale, and recover the goods from the transferree of his fraudulent vendee, will not be defeated. But, if the creditor’s debt is, by the transaction, in fact and in law satisfied, he will, if innocent, receive the protection of a bona fide purchaser against the equity of the defrauded vendor. — Shufeldt v. Pease, 16 Wis. 659. The sufficiency of the evidence to show that the satisfaction of an existing debt was part of the consideration paid for the goods is addressed to the consideration and determination of the jury, under proper instructions from the court. It is not our province to intimate an opinion, and if it were, the record does not disclose the necessary facts. We merely decide, that assuming the hypothetical fact stated in the charge — if any part of the consideration was the satisfaction of an antecedent debt due by Yogel to Bernstein and Mrs. Schonfeld, or either of them — it was error to instruct the jury they were not bona fide purchasers for value. 4. The remaining question relates to the burden of proof as [147] to notice of the fraud of Yogel. On the hypothesized facts, that the defendant purchased the goods from Bernstein and Mrs. Schonfeld in good faith, and paid them a fair and valuable consideration before the disaffirmance of the sale by plaintiffs, the court refused to instruct the jury, that the burden of proving defendant had notice of the fraud of Yogel in obtaining the goods, was on the plaintiffs. As a general rule, the onus probandi is on the party holding the affirmative, though the rules of pleading may require a negative averment by the adversary party. The question, on which party was the burden of proving notice of infirmities in a negotiable paper that had been transferred, was before this court in First National Bank v. Dawson (at present term), where it was held, that on the issue of notice velnon, the burden of proof was on the affirmant. The same rule applies in the case of a purchase from a fraudulent vendee. When the plaintiffs proved that Yogel had obtained the goods from them by fraudulent devices, it was incumbent on the defendant to establish that he was a bona fide purchaser; that is, that he actually purchased and paid value. Proof of payment of value and a purchase casts on the plaintiffs the onus of showing that the defendant, at the time of the purchase, had notice of the fraud, if by such notice they seek to subordinate his right to theirs. — Easter v. Allen, 8 Allen, 7. 5. Counsel have earnestly pressed upon our attention the sufficiency of the evidence to show mala fides in the purchase by Bernstein and Mrs. Schonfeld, and by the defendant, and that they were chargeable with notice of the fraud of Yogel, for the purpose of establishing the conclusion, that the instruction on the burden of proof did not affect them injuriously, and is not a reversible error. We must decline to enter on the consideration. The record recites there was evidence tending to prove both phases of the ease. Which phase was proved, was a question for the jury. When there is conflicting evidence, it can not affirmatively appear that a charge misplacing the burden of proof works no injury. Reversed and remanded.