Stockton v. Craddick

The judgment of the court {Rost, J. absent,) was pronounced by Eustis, C. J. This suit was instituted, in January, 1841, and was eommenced by attachment against certain lots in New Orleans, as the property of the defendant. Judgment was rendered for the plaintiff, with privilege on the property attached, in February, 1842. Execution having been issued on this judgment, and the lots having been advertized for sale, the proceedings were enjoined at the instance of T. R. Hyde Sf J. S. Clapp, who claimed the lots as their property, having purchased them at a sheriff’s sale, at which they were sold under executions against J. J. Hall. On a hearing, the injunction was dismissed, and Hyde Sf Clapp have appealed. This case has been already once before this court, and is reported in 1st An. p. 40. It is now before us in the form of an opposition to the plaintiff’s execution, called in our Code of Practice, the third opposition. An episode of the case is also reported in 10 Rob. 387. Hyde et al v. Craddick. After the issue was joined on the original opposition, a supplemental petition was filed by Hyde Sf Clapp* in which it is alleged that the plaintiff is- an attor — 285 — ney and counsellor at law, licensed to practice in the several courts of this State, and that, at the time he purchased the claims on which he obtained the judgment ^gainst Craddick, he was practising in the late Commercial Court of N ew Orleans, in which the judgment was rendered, and that so far as said claims affect the rights and property afterwards purchased by the opponents they are litigious, and the sale of them to the plaintiff is absolutely null. Interrogatories were propounded to the plaintiif, who fully answered them; but we do not find that any answers was filed to the supplemental petition, though an exception was filed to it, which was afterwards withdrawn. We cannot consider this important allegation as admitted; but, as the cause was tried on its merits, we must hold it to have been at issue, under the answer of the plaintiif to the opposition filed by Hyde Sf Clapp- The allegation relating to the plaintiff’s being a practising lawyer in the court in which the attachment was instituted at the time alleged, is not proved. He had been previously admitted to the bar in this State, but we have nothing before us on which any other place of residence or business can be assigned to him than is alleged in the petition for the attachment, which is Vicksburg, in the State of Mississippi. It appears that the plaintiff acquired the notes sued on from one Reading, and, on being interrogated under oath, he states that he had learned, by inspection of the books of the register of conveyances in New Orleans, that Craddick was the owner of the lots attached previous to his purchasing the notes, and that he verily believed, at the time of the purchase, that Craddick was their real and bond fide owner, and he so informed Reading at the time. Craddick held the lots under a fraudulent title. J.J. Hall, an insolvent debtor, had conveyed them to C. C. Hall, in July, 1839, who, on the eve of absenting himself, left a power of attorney to sell them, with his wife; she conveyed them to Robert Mott, who took the title at the instance of Craddick, under the conviction that the conveyance was made for the purpose of securing the rights of the wife of J. J. Hall, who was Craddick's daughter. Mott, as well as Craddick, resided at Vicksburg, at this time; and, on finding soon after the title was made to him, that one of the Halls was in jail and the other had absconded, he insisted on Craddick's taking the title out of him, which was accordingly done, by a transfer to Craddick, of the date of the 14th July, 1840. The opponents, Hyde Sf Clapp, are judgment creditors of J. J. Hall, and, after the plaintiff’s attachment had been levied on the lots, they instituted their revocatory action to subject the property to their execution, on the ground of the fraud in the title to Craddick, and it was so decreed. Under this judgment execution was issued, the lots were sold under execution, and the opponents became the purchasers. This judgment was reversed on a matter of form—but a subsequent judgment was rendered, by which Oraddick's title was decreed to be fraudulent and simulated. The question, as it has been presented to us in argument, and it embraces the substantial merits of the cause, is, as to the liability of this property to be attached by the creditors of Craddick, while this fraudulent title was subsisting. We think there is no evidence charging the plaintiff with notice of the character of this title, and the matter is therefore reduced to a naked question of law. The district judge gave the plaintiff judgment, which held the property subject to the creditor’s attachment, under the authority of the case of Foster's heirs v. Foster's administrators. 11 La. 408. — 286 — In that case it was held that, where a fraudulent vendee of slaves, under a title valid in point of form and having the appearance of verity and good faith on its face, mortgages them to an antecedent creditor, who is ignorant of the fraud, his right will not be affected by the fraud between the original parties to the sale; and, on this ground, the verdict of a jury was reversed, and the judgment was given in favor of the mortgagees, in accordance with the views of the court on the matter of law. This decision appears to us to be in liarmouy with article 2236 of the Code, which provides that counter-letters can have no effect against creditors or bond fide purchasers, being valid as to all others. We have not been able to find any decision in which the rulo in this case has been impugned, and the title having passed out of Hall, and, by intermediate conveyance, to Craddick, and the latter being in possession of the property at the time of the attachment, the present case case comes clearly within it. Williams v. Hagan, 2 La. 123. Syndic of McManus v. Jewett, 6 La. 531. Judgment affirmed. * Footnotes [*] Benjamin and Micou, for a re-hearing. The fraud in Craddick's title has been twico pronounced. The plaintiff does not contest or deny the existence of this fraud, and yet he contends that, as a creditor of Craddick, he has a right to profit by it, and subject the property to his attachment. The question then presented, is between the creditor ot Mail and the creditor of Craddic/c. Tne property really belongs to'Hall, but Cradd.ck has the fraudulent title. The creditor of Hall claims, because the property belongs to his debtor; the creditor of Craddick, because his debtor has accepted and recorded a fraudulent title. Supposing them equally innocent, the decree in favor of the latter gives effect to the fraud. The ii aud, which despoils one creditor, enriches another. It is not the case of an innocent purchaser, or of a mortgagee who pays or lends his money on the faith of a solemn and recorded title. It is the naked case of the creditor of an insolvent, attempting to obtain payment of his debt, through the fraud of his debtor, at the expense of innocent creditors of another fraudulent debtor. I. Our first position is, that the title of Craddick, being fraudulent, was, so far as the creditor of Hall were concerned, void ab znJiO, and could give fio rights to the creditors of Craddick. The general rule that whenever a party may sell, his creditors may attach, does not contemplate the case of possession obtained by fraud. With regard to personal property, it was formerly held, that the attachment would lie except when the property had been procured by a felony; but this rule has been modified, and it is now well established that, if possession be obtained by fraud or imposition, the original owner may recover bis propci ty. Such is the rule laid down by Judge Story in De Wolf v. Babbet, 4 Mason, 294, and followed by the late Supreme Court in Gasquet v. John on, 2 La. 516. In the latter case, possession had been obtained on the faith of a letter of credit, which had been revoked. Tne court held that, the use of such a letter, after it was recalled, was equivalent to forging a new letter; and, although the merchandize had been brought from Philadelphia to Now Orleans, by the defendant in attachment, the vendor recovered against the attaching creditor. So in Prall v. Pce', 3 La. 282, the court say that the fraud charged by the petition, and found by the jury, was sufficient to authorize the CQUYt to consider the sale in question void ab xn-tÁo, and not translative of property. It is only when the vendor has voluntarily parted with the possession, that his equity is not equal to that of a bond fide purchaser for a valuable consideration. Russell v. Favier, 18 La. 589. Marks v. Landry, 9 Rob. 526. In all these cases, the contest was between the owner and attaching creditors or purchasers. But if the owner in such cases could recover, his creditors have still a higher right. The owner may be charged with imprudence, at least, in permitting possession to be obtained by false pretences; but the charge will not.lie against creditors, who cannot, by any possibility, prevent their fraudulent debtor from secreting his property. His combination with another to defraud them, is independent of any action, or even knowledge, on their part. The parties who conspire are in fraud, but the creditors arc innocent. If then, by such fraudulent conspiracy, the possession or title to the property passess to a fraudulent vendee, the sale must he considered void, ab initio, as to creditors, and not translative of the propeity. Such is the rule applied in England, and in the couits of the United States. The stat. 27 Eliz. c. 4, declares, that fraudulent conveyances may be avoided by creditors, unless the property shall have passed to an innocent purchaser for money or other good consideration. Sugden on Vendors, c. 16, p. 416. The rule that is constantly applied in the chancery courts is the same; and when such fraudulent conveyances were attacked by creditors, they* have been repeatedly decreed void, abinito, as to their effect upon the parties defrauded. * “A deed founded in actual and positive fraud, as beingmade under the influence of corrupt motives, and with the intention to cheat creditors, maybe considered void ab initio, and never to have had any lawful existence.” Thompson, C. J., Murray v. Riggs, 15 Johns. 586. Osborne v. Moss, 7 Johns. 164. The distinction between a void deed and one only voidable bas been repeatedly and learnedly discussed. Mackie v. Cairns, 5 Cowen, 579. Henriques v. Hone, 2d ed. Ch. R. 122. We do not enter into it, because it is deemed u mecessaiy in the present argument. The deed may he good between the parties, yet if it is fraudulent as to creditors, if it is attacked "by them and set aside, the nuility is retro-active. The fraud being established, the oonvey — 287 — uüce is treated as if it liad not existed. Whatever may be the distinctions between void and voidable, the judges all concur in this result, that the fraud once shown, although the parties may be bound, the deed is void as to creditors. Neither the courts of common law nor chancery allow any exception to this rule, except in favor of a bond jtda purchaser, for a valuable consideration. “And by the civii law, whatever debtors do to defeat their creditors is void, and there is a great resemblance between the civil law in this matter, and the statute of 13th Eliz.” 1 Ponblanque’s Equity, b.l, ch. 4, s.l2,p. 204. To the same purport is our own legislation. The Code gives to the creditor, his action to “ annul.” Art. 19(55. And, if his action be maintained, the decree is, that the contract be “ avoided as to its effects on the complaining creditor,” &e. Ark. 1972. The liability to attachment for debts of the fraudulent vendee, is one of the effects of the conveyance. The attaching creditor gives no consideration, for the right which he claims to exercise. He comes in under, and not through, the vendee. He seeks to avail himself of the interest of the debtor in the thing. If he bad paid value for it, or advanced his money upon mortgage, his case would depend on other principles. But he seeks to avail himself as a creditor, of an apparent right of his debtor, and is met with proof that the right is not real, and Is based in fraud. Tne positive language of tho law then applies. The creditors who have been defrauded, are to be redressed. Tho title of the defendant in attachment is annulled; it is decreed void ab ind\o, as to the injured creditors, and the attachment necessarily falls, with the title or interest on which it was based. That an attaching creditor can stand on no bettor looting than his debtor, see United States v. Vaughan, 3 Binney, 400. II. Tne registry laws, which declare that no act shall take effect against third persons unless recorded, are supposed to support the claims of the attaching creditor. We propose to show that such laws are not applicable to the case. We hold, that these laws are simply intended to enforce publicity of transfers; and, for that purpose, they impose upon every purchaser the necessity of dilligence in inscribing his act, at the risa. of losing his property. In the two cases cited in the opinion of the court, this heavy penalty was incurred and enforced—Hagan v. Williams, 2 La. 122; McManus v. Jewett, 6 La. 531; and to the same point is the later case of Crear v. Sowles, 2 Ann. 598. In the case of Stockton v. Briscoe, 1 Ann. 249, the attachment was based upon the neglect of registry ¿ it failed, because the inscription of the last act was considered sufficient; and tire dissenting opinion, is an argument upon the tenor and policy of the laws passed to cniorce the prompt; registry of acts. Tne penalty for neglecting to register a conveyance, is fixed by an express enactment. The penalty may always be avoided, by compliance with the requisitions of the law. If a purchaser neglect to inscribe his title, he exposes himself to loss by his own fault or want of diligence. Ifrpm motives of public policy, the risk of other rights being acquired is thrown upon the party in default. A purchaser who omits to comply with the law, can receive no favor from the courts. Whether those who oppose are creditors or subsequent purchasers, he has no right to complain. The provisions of the law may seem to he harsh, but his own diligence would nave avoided its penalty. If he loses, it is by his own neglect. But these considerations are wholly inapplicable to the creditors of a fraudulent vendor. They have done nothing which the law prohibits; they have omitted nothing which it commands. How then can Che force of a registry law be opposed to thorn, when they complain of a fraud'/ The mere registry of a fraudulent title, would certainly not prevent a revocatory action. To give to the registry laws such effect, would be a perversion of their meaning. They are intended only to compel inscription; not to regulate equities between creditors,- or to fix tho consequences of fraud. If the conveyance be made in good faith, tho registry is the perlectiou of the title; if made in fraud, other laws prescribe when, how, and by whom, it may be annulled. A case reported in Sircy, 1807, 877, affords the strongest illustration of this principle. By the laws of Ifrance, a tax was imposed upon all sales, in proportion to the price. In order to enforce this lav/, registry was required, with a statement of the price actually paid. It was further provided, that, if the parries attempted to avoid this impost, by counter letters, stipulating for a higher price than that stated in the public act, the counter letter was absolutely null. In a case arising under this law, the price mentioned in the act was 250,000 iraucs, while tho true price, as represented by a counter letter, was 300,000 francs. Tne counter letter was null between the parties, yet the creditors of tho vendor recovered the remaining 50,000 francs from the purchaser. The law declared the contract absolutely null, but the courts could not give it a construction which would enable the purchaser to retain part of the price justly belonging to the creditors. In the hands of the vendor, the agreement was null and reprobated, because he was guilty of a violation of the law; but his creditors were innoc.ent, and the penalty intended for him, could not he inflicted on them. “ Q.ue e’est done,” saj-s the court, “faireune fausse application de ces lois ou il s’agit de l’iutéiot de tierces personnes, de legitimes créanciers, qu’on a fcrompés á leur insu, par la contre-lettre dont il s’agit, dans laquelleils ne sont point parties, ct quo le vendcur, ¿’intelligence avec les acquéreurs, a voulu priver d’unc partie de leur gago; que ce serait autoriser le aol contre les créanciers, et les rendre victimes de la simulation ou de la fraude qu’ils ironfc pu empécher, si on annullait a leur égardle lettre qui la constate; ordonne,” &c. 10 Dalloz, Jur. Gen. G75. Here the law pronounced absolutely null an agreement not contained in the public act; but the nullity was enforced only between the parties in fraud. Innocent creditors did not receive the stripes intended for fraudulent vendors. To follow the letter of the law would have boon to annul its spirit. We repeat, therefore, that registry laws are intended to enforce diligence and to prevent frauds—not to favor them. No man can suffer by those laws who complies with their requirements. If a ■purchaser loses, lie has only himself to blame. He may refuse to pay until his deed is inscribed, or he may inscribe it himself as soon as signed. But tho law’of registry cannot punish the creditors of tho vendor, because it imposes no diligence upon them. Their rights are governed by rules and principles wholly distinct from those fixing the consequences of non-inscription. The proposition, that a title not registered has no effect against third persons,-or creditors, does not embrace the proposition that a fraudulent title, if registered, will prevail against the creditors of the vendor. III. Wliat effect has art. 2236,- as to counter letters, upon the issue now before the court ? That article provides that counter ietters can .have no effect against creditors or bond jide — 288 — purchasers; but that they are valid as to all others. The article is applicable only to counter letters, bearing witness of a legal contract. If the object be illegal, the counter letter is void, and cannot be enforced between the parties. Act, 1887. On the other hand, the agreement being illegal, creditors may set it aside; they may use the counter letter as proof of the fraud; they may hold the vendee to its terms, although the vendor could not do it. The rule is reversed by the fraud. The parties cannot enforce the contract, but third persons can. The article is intended for cases where property is voluntarily, but innocently, conveyed. In such cases the vendor has his recourse against the vendee, but takes the risk of all other persons acquiring rights. If he has imprudently invested another with the insignia of ownership of his property, the law imposes upon him all the consequences of his imprudence. The creditors of the vendee, either precedent or subsequent, may seize it, and the real owner cannot complain. He is estopped by his own act, and is not permitted to set up his private counter letter, against the public title which he has himself conferred. It follows that this article is not applicable to cases of fraud. That this is true, will, we think, be moved by reference to the decisions and treatises upon the corresponding article of the Code Napoleon, art. 1321—notes, Sirey, Cede Annoté; 13 Duranton, n. 104; 8 Toullier, 186; S. & Villeneave, 1842, 167; Dalloz, 1826, 1st part, 266; 10 Dalloz, Jur. Gen. 674. The principles established by these authorities, are uniformly discussed and decided, with reference to the offects of counter letters between the parties themselves, or between the parties and creditors. The party tp the counter letter is always plaintiff’ or defendant. No case occurs of a conflict between the two classes of creditors, to wit, the creditors of the vendor and those of the vendee. The expression of the french article is, u les tiers,” a term if possible more broad than that of the corresponding article of our Code, yet this article docs not seem to have been applied to any case like the present. From one of the cases above cited, we may faivly presume that, if the position of the parties had been the same as in the present case, the counter letter would have been enforced. IV. The articles of the Code giving to creditors their action to annul contracts of their debtors in fraud, apply to this case. We have endeavored to show that, no special law, relating to counter letters and registry, imposes upon the court the duty of inflicting a wrong upon the opponents; wo have now to show, that the positive legislation of the Code, so far ñom commanding injustice, is entirely consistent with those principles of equity, for which we are contending, and wnich have been so repeatedly announced by chancellors and judges, in England and the United States. We think the case is lully covered by those articles of the Code, regulating the right of creditors to set aside contracts, in fraud of their rights. In the first place, the general principle is borrowed from the civil law, and consecrated by justice as well as by its age. “ Every act done by a debtor, with the intent of depriving his creditor of eventual right he has upon the property of such debtor, is illegal, and ought, as respects such creditor, to be avoided.” C. C. 1964, 1984, Dig. lib. 42, tit. 8, s. 1. 17 Poth. Pand. 406. I Do-mat, p. 495, lib. 2, tit. 10, s. 1. This general provision is equivalent to the provisions of the stats, of 13th and 27th Elizabeth, which have formed the basis of the english jurisprudence on the subject. But the Code has extended the principle still further, and prescribed its application to special cases, thus giving to the injured creditor more completo and definite relief, than he could obtain in a court of chancery. For instance, the court of chancery will not inquire into the adequacy of the price, unless it be so small as to be palpably fraudulent (2 Hovenden, 74), while the Code gives to the creditor the right of redeeming the property, even from an innocent purchaser, if the value exceed the price actually paid by one-fifth. Art. 1976. The english law does not prohibit a conveyance in payment of a just debt, while the Code declares that the insolvency of the debtor renders such a transfer fraudulent and void, and gives to the creditors the right of rescinding it, thus taking back the property for the mass, and reviving the debt paid by its transfer. Arts. 1977, 1978. The Code provides specially for cases in which the purchaseris innocent, and for those in which he is guilty offiaud, actual or constructive. In some cases restitution of price is made, with or without interest*, in all, the property is recovered; and in all cases where the only consideration is a debt due, the only restitution made is, the replacing of the parties in the position in which they were before the transfer. We presume that the plaintiff in this case, does not consider his attachment superior to the claim of a purchaser for a valuable consideration. If a purchaser for an inadequate price, he would be bound to give up the property, on the price being refunded. But he has paid no price; consequently we arc compelled to place him a step lower in the scale. His position is nearest that of a creditor, who hasobtained propeityin payment or as security. It is true that he does not obtain it from Halt) nor is Hall his debtor. But if the property, though in Craddtck's name, really belongs to Hall, it is impossible to place a transfer to a creditor of Cradd.dc, upon a better footing than asimilar transfer to a creditor of Hall. That there are two fraudulent debtors, and two sets of creditors, cannot alter the principle, or pi event its application. The transfer to Craddidc has been annulled. So far as lie is concerned, his title is blotted out of existence. Then S£ockton\ms acquired alien on Hal’s property, for the debt of auother person. The basis of that lien, is a fraud upon the creditors of Hall. The rule laid downin the Code applies. The security thus acquired is annulled; there is no restitution, save replacing Stockton in his original position. He remains a ci editor of Cradd.dc as before his attachment. Nor can it be pretended, that these provisions are inapplicable to attachment by legal process. The relief contemplated by the Code, is not confined to the case of contracts alone. Every act of the debtorin fraud, may be set aside or remanded. Arts. 1964, 1984. The act or contract with all its effects, is annulled. Arts. 1972. The levy of the attachment, was one of the consequences or effects of the fraudulent transfer. The law Is not confined to the cases specially enumerated in the Code. The cases stated ere merely instances; the principles are embodied as the law. If Stockton had taken a mortgage from Craddidc for an old debt, his mortgage would be annulled. If he had bought the property for half its value, the property would be restored on refunding his advance; consequently he is to be put where he stood before. His attachment must be set aside, his notes go back to him. The only additional restitution that he could — 289 — possibly claim, would be liis costs, until notice of the fraud. If more were allowed him, he would be more favored Ilian an innocent purchaser, for he would receive more than he gave. If we have not entirely failed in our argument, there is no special law, necessarily protecting this attachment against the just demands of the creditors of the true owner. The law of counter letters and of registry, being inapplicable, no other can be suggested leading to such a result. If the rules of the revocatory action do not apply, the conclusion must be, that in our most elaborate and highly artificial Code, there is no provision for a case of great importance and of frequent occurrence. Upon either hypothesis, this attachment must fail» If the Code does not provide for the case, we are thrown back upon those principles of justice and morality, which lie at the basis of all jurisprudence. Such principles are sufficient for the cause. No mancan claim under a fraud, unless he has innocently advanced his money on the faith of the apparent title. If he has paid nothing, he can lose nothing by the fraud being redressed. If two parties are equally meritorious and equally innocent, the possession of one will not be disturbed for the profit of the other; but to say that they are equally meritorious, means that both have advanced their money, or that both are exposed to loss. The term does not apply when one only is exposed to loss, and the other has but the chance of gain. 1 Story, Eq. sec. 381. Fletcher v. Peck, 6 Cranch, 133. Bean v. Smith, 2 Mason, 272. 2 Vesey, Jun 458. 8 Mart. N. S. 342. 1 Mart. N. S. 387. Walwyn v. Lee, 9 Vesey, Jr. 24. 2 Eonblanque, Eq. b. 2, s. 2. 2 Hovenden, on Fraud, c. 18,|p. 74. V. The case has been thus far considered upon the supposition, that Stockton the attaching creditor, was not notified of the fraud. But we must again urge upon the court, that the circumstances were sufficient to put him upon enquiry, and he is therefore in law affected with notice of the fraud. The disproportion between the condition of the purchaser and the pretended price, was sufficient evidence of fraud and simulation. Can it be contended that the plaintiff, who knew this condition, and who saw the record of the purchase, was not put upon his guard ? 2 Vesey, jun. 437. 1 Story's Equity, s. 399. If Stockton had purchased from Craddick, knowing his position as he confesses he knew it, he could not have been considered an innocent purchaser. When defrauded creditors are seeking restitution, even purchasers receive no favor, if they were put upon enquiry and did not choose to enquire. They may not shut their eyes and be accounted innocent, because they were willfully blind. It “ is notice of the use, therefore, that is all the effect of the matter; for then he is parti ceps crimints, et dolus el fraus nemini patrocinantnr, since in conscience he purchased my lands or my goods. For the common law, whenever it found a consideration discharged the covin; but chancery looks further to the corrupt conscience of the party, that will traffic for what in equity he knows to belong to another. And in all cases where the purchaser cannot make out a title, but by a deed which leads him to another fact, the purchaser shall not be a purchaser, without notice of that fact, but shall be presumed cognizant thereof; for it was crassa iteghgentia, that he sought not after it, and this is in law a notice." 2 Fonblanqne, p. 151, b. 2. s. 2. Re-hearing refused.