Ames Iron Works v. Kalamazoo Pulley Co.

Wood, J. 1. The satisfaction of a pre-existing debt as a consideration for the transfer of goods fraudulently obtained will not of itself constitute the bona fide transferee an innocent purchaser for value, as against the one from whom they were obtained by fraud. Eaton v. Davidson, 46 Ohio St. 355; 1 Beach, Mod. Eq. Jur. sec. 391, note; Sleeper v. Davis, 64 N. H. 59; Henderson v. Gibbs, 39 Kas. 679. The reason of the rule, says Chancellor Walworth, is “that a purchaser of the legal title, who receives his conveyance merely in consideration of a prior indebtedness, is not entitled to protection, because he has lost nothing by the purchase.” Padgett v. Lawrence, 10 Paige, Ch. 180. He has parted with no new consideration, has given up no security or evidence of indebtedness, nor in any other manner changed his legal status, to his detriment, which is the real test. The mere crediting the $1,200.00, the purchase price of the pulleys, on the judgment of appellant against Baird for $2,511.35 operated as nothing. There was no cancellation or surrender of any written security in this, for, when appellee rescinded the sale, and reclaimed its goods on account of the fraud of Baird, the consideration for the credit on the judgment failed, and appellant, as to this, and its debts against Baird, was left in statu quo. Eaton v. Davidson, supra; Sargent v. Sturm, 23 Cal. 359, 83 Am. Dec. 118; Piper v. Elwood, 4 Denio, 165; Adams v. Smith, 5 Cow. 280. At least, this transaction alone does not show that appellant’s position was changed for the worse. Unless this is shown, the consideration of a pre-existing debt, while good between the parties, will not bring the purchaser within the rule which protects him as a purchaser for value against one having superior equities. A different rule prevails as to the innocent holder of commercial paper taken in payment of a pre-existing debt. He is protected as a purchaser for value. Bertrand v. Barkman, 13 Ark. 150; Harrell v. Tenant, 30 id. 684; Winship v. Merchants Nat. Bank, 48 id. 460, and authorities cited. We are cited to cases in Illinois and Wisconsin, which hold that if the rule as just announced be true as to negotiable papers, 11 a fortiori, is it true also of goods and chattels merely.” Non sequiiur. The reason that the satisfaction of a pre-existing debt is regarded as a valuable consideration for the transfer of commercial paper, so as to bring its holder within the rule, and is not so regarded as to goods corporeal merely, is not because of any difference in the consideration itself, for there is no difference. The distinction grows out of the difference in the character or quality of the thing transferred in its relation to trade and commerce. The necessities of the commercial world, says Judge Kent, ‘‘require that bills of exchange and promissory notes should possess some of the attributes of money and exchangeable value; and, to clothe them with these attributes and to give parties confidence in their reception, it is necessary to protect them in the hands of 'a holder for value from defenses growing out of the dealings of the prior parties.” , Kent’s Com. 79; Bertrand v. Barkman, 13 Ark., sufra. It is an “arbitrar}7 rule of commercial policy” which makes the transfer of negotiable instruments in consideration of an antecedent debt good as against the prior equities of the defrauded owner. And while this is the rule established by the great weight of authority, and so decided by our own court (see cases sufra), yet there is very high authority to the contrary. Comstock v. Hier, 73 N. Y. 269; McBride v. Farmers' Bank, 26 N. Y. 450; Weaver v. Barden, 49 N. Y. 286; Webster v. Howe Machine Co., 54 Conn. 394 (where New York authorities are reviewed); Coddington v. Bay, 20 Johns. 637; Stalker v. McDonald, 6 Hill, 93. The rule obtains as to commercial paper only by reason of the necessity for facilitating trade by promoting the most liberal circulation of such paper. There can be no reason for extending the rule to goods merely, which do not perform the functions of a circulating- medium, and where the necessity mentioned above does not exist. Certain dicta in other cases, where this question was not involved, have encouraged counsel to say that the rule they contend for “has been expressly recognized by this court,” citing Johnson v. Graves, 27 Ark. 557; Gerson v. Pool, 31 id. 88; Shibley etc. Grocery Co. v. Ferguson, 60 id. 160. But the question under consideration is now for the first time ■ squarely presented, and we conclude that the doctrine announced in the beginning of this opinion is more in accord with reason and justice, and is supported by abundant authority. Root v. French, 13 Wend. 570; Johnson v. Peck, 1 Woodb. & M. 334; Barnard v. Campbell, 58 N. Y. 73; Beavers v. Lane, 6 Duer, 232; Sargent v. Sturm, 23 Cal. 359; S. C. 83 Am. Dec. 118, note; Tiedeman, Sales, p. 533; Newmark, Sales, sec. 205; 8 Am. & Eng. Enc. Law, p. 842, note 12; 2 Dorn. Eq. Jur. sec. 492. Compare Jetton v. Tobey, 62 Ark. 84. deSaraüous admflñble." 2. The alleged statements of the agent of appellee were no part of the res gestee, and were properly excluded. The only authoritative act of the ag'ent “in looking after the interest of appellee,” as related to the appellant, was to demand of it the possession of the .property in controversy. Appellant owed appellee nothing, and, not being an innocent purchaser for value, was in no position to resist the rescission of the fraudulent contract of sale between Baird and appellee. It is nowhere shown that the alleged admissions of the agent were made while he was in the performance of an act of agency. “It is only because they are verbal acts, and part of the res gestee, that they are admissible at all.” 1 Greenl. Ev. sec. 113; Byers v. Fowler, 14 Ark. 105; Ferguson v. Edrington, 49 id. 207; 1 Rice, Ev. sec. 230. That they were made “while the agent was in Little Rock representing appellee in the collection of its debt” from Baird, ‘‘and before the pulleys were replev-ied,” does not show that they were connected in time or relation to the business of recovering- a lot of pulleys from appellant. Judg-ment affirmed.