Fernwood Lumber Co. v. Meehan-Rounds Lumber Co.

Truly, J., delivered the opinion of the court. On February 5, 1902, the Eernwood Lumber Company, holding an unsecured debt against one J. II. Greene, a citizen of the state of Iowa, .filed a creditors’ bill in the chancery court, by virtue of the provisions of § 503, Code 1892, against said Greene and wife and one B. E. Thomas, also a non-resident, seeking to have canceled, as against its rights, a certain deed executed by said Greene and wife to Thomas, purporting to convey certain lands in Lauderdale county, this state. ' This deed, the bill of complaint averred, was fraudulent, collusive, and intended to hinder complainant in the collection of its just debt. The prayer of the bill was that complainant “have a personal decree against said J. II. Greene for the amount of the indebtedness, and that said lands pretended to be conveyed to said B. E. Thomas be condemned to be sold to pay the same, and, to this end, that proper jnocess and publication issue and be made for said defendants.” On the same day complainant filed and had [63] entered upon the Us pendens docket a notice in conformity with § 2783, Code 1892. On the 15th day of February publication was made for said non-resident defendants as prayed by the bill, and on the 20th of the same month a copy of summons was mailed to each of defendants as directed by statute. On the 10th day of February, 1902, as the result of previous negotiations, B. F. Thomas executed to James Meehan a deed conveying in fee simple the lands in question for a cash consideration of $1,200. This deed, with the draft for the purchase money, was forwarded through one of the banks of the city of Meridian to the purchaser, the purchase price was paid, and the deed actually delivered on the 18th day of February, 1902. The record discloses that Meehan, the purchaser from Thomas, was ignorant of the claim of the Fernwood Lumber Company against Greene, and had no actual notice that a bill of complaint had been filed or a notice placed upon the Us pendens docket. The suit instituted by the Fernwood Lumber Company against Greene and Thomas progressed regularly to its conclusion, and resulted in a decree granting complainant a judgment against Greene for the amount of its debt, and directing a cancellation of the deed from Greene and wife to Thomas, and subjecting the land in question to sale for the satisfaction of said indebtedness. When the land was advertised for sale under the direction of said decree, the Meehan-Bounds Lumber Company, which had acquired title by conveyance from James Meehan, learning of said proposed sale, filed its bill in the chancery court, prayed for and obtained an injunction forbidding said sale, and upon final hearing obtained a decree making said injunction perpetual. From that decree the Fernwood Lumber Company appeals. The decision of this controversy necessitates a consideration of the provisions of § 503, Code 1892, under which appellant instituted its original suit. By virtue of that statute the creditor who has or has not obtained a judgment at law may file his-bill to set aside fraudulent conveyances of property, or other-devices resorted to for the purpose of hindering or delaying or [64] defrauding creditors, and may subject the property to the satisfaction of his demand. In such case, by operation of law, a lien is created in favor of the creditor upon the property described in his bill of complaint, from the filing thereof, “except as against bona fide purchasers before the service of process upon the defendant in such bill.” In the instant case, therefore, the Fernwood Lumber Company, by filing its creditors’ bill, established a lien upon the land in controversy from the date of such filing against all persons excejot bona fide purchasers, and as to such purchasers it also had a lien from and after the service of process upon the defendants. As the purchasers from Thomas (appellees here) occupy the attitude of bona fide purchasers for value, it becomes necessary, in order to determine which has the prior claim on the land, to ascertain when process is served upon a defendant to a bill of complaint. It must be noted that all parties made defendants to the original bill of complaint were non-residents of the state, and, as to such, service of process can only be had by publication in the manner and for the time prescribed by statute. The answer to the inquiry is found in § 3421, Code 1892, which expressly provides the manner in which publication for a non-resident defendant shall be made, and recites, after giving the form to be used: “Upon proof of publication of such summons for three weeks in some newsjoaper published in the county, and of the mailing of a copy of the summons to the defendant at his postoffi.ee, where that is stated, the defendant may be thereafter proceeded against as if he had been personally served with a summons in the case in this state.” This statutory provision is controlling upon this branch of the present discussion. The language is unambiguous, the meaning manifest. The defendant can be proceeded against as upon personal service had, only after the completion of the publication for the required number of times, and the mailing of a copy of the summons to his postoffice address, when the same is stated. In the case at bar the Fleehan-Rounds Lumber Oonqpany acquired title by absolute conveyance for an adequate [65] consideration while acting in perfect good faith, and in total ignorance of the pendency of any suit, prior to the completion of the publication, and before any notice thereof had been mailed to the non-resident defendants. - Being a “bona fide purchaser before the service of process upon the defendant in such bill,” it falls within, and is protected by, the exception stated in sec. 503 supra. But it is contended by counsel for appellant that, conceding this to be true, when see. 503 is considered as standing alone, the rule announced by that section is now modified, if not abrogated, by ch. 85, Code 1892. We think this position untenable. The history of sec. 503, as disclosed by the previous adjudications of this court, demonstrates that it was intended to protect creditors against the fraudulent devices of their debtors and to defeat fraudulent conveyances of property designed to prevent the collection of just debts.. This statute was enacted to render ineffective and unavailing all fraudulent and collusive conveyances made prior to the institution of a suit, and to prevent divestiture of title subsequent to the filing of the bill by which it was sought to subject the property to the payment of an existing debt, whether the. same had been reduced to judgment or not. Section 503 was designed for the protection of those creditors who have no lien upon, right to, or interest inland; while ch. 85, Code 1892, was enacted for the benefit of those entitled to such interest, lien, or right by virtue of some secret equity, some undisclosed claim, or founded upon or evidenced by some unrecorded instrument. A creditors’ bill filed under the provisions of sec. 503 is an effort to restore the title of the property involved to his debtor, who had fraudulently divested himself thereof, and which would, but for such fraud, have been subject to his debt. Successful in this, the law creates for him a lien upon the land in controversy, which relates back, as to other creditors and third persons in general, to the filing of the bill, and, as to bona fide purchasers, to the service of process upon defendant. Chapter 85 affords [66] a simple plan whereby those persons who, at the date of the institution of the suit, are vested with, or legally entitled to, a lien upon, right to, or interest in real estate, may protect themselves from subsequent divestiture of title to their detriment. The two statutes relate to entirely different and distinct classes of litigants. To make this more manifest, sec. 2786 provides that, if the person beginning any of the suits dealt with by ch. 85 shall fail to have the required notice entered upon the lis pendens docket, such suit “shall not affect the rights of bona fide purchasers or incumbrancers of such real estate, unless they have actual notice of the suit or levy.” By this section protection of litigants who seek to take advantage of ch. 85 is made to depend upon the due filing of the notice therein authorized. By sec. 503 this protection is afforded after the service of process upon the defendant, without regard to the filing of any Us pendens notice and without reference to the knowledge or actual notice of the purchaser or incumbrancer. It is manifest, therefore, that the appellee, having purchased in good faith, for an adequate consideration, before service of process upon the defendant, must be protected in its title. As not being necessarily before the court for consideration, we intimate no opinion as to when a suit is begun, within the purview of ch. 85, or from what date a lis pendens notice properly filed thereunder takes effect. The decree is affirmed.