Jacobs v. Smith

Rat, J. This was a suit in the nature of a creditor’s bill commenced in the circuit court of Jasper county on October 23, 1877, by the plaintiffs, Jacobs, Gibbs, Barker, Burkhart, and Simpson’s administrator against Catherine Smith, her husband, and the legal ■representative of one William Sharp, deceased, to subject lots ten and nineteen in Webb’s first addition to Webb City, in said county, in the hands of said Catherine, to the payment of the claims of said plaintiffs as •creditors of said Sharp, deceased, on the ground that the property exchanged by said Catherine for said lots had been fraudulently conveyed by said Sharp to said Catherine, his daughter, while insolvent, with intent to •cheat and defraud his creditors. On the same day said plaintiffs also filed for record with the recorder of deeds for said county, the statutory notice of the pendency of .said suit, as required by section 3217, Revised Statutes of 1879, p. 542. Afterwards, on January 17, 1878, said — 678 — Catherine and her husband gave a mortgage with power of sale on said lot nineteen, to one Johnson, to secure a note for $79.50, due in thirty days ; and at a sale thereof ■ under said mortgage, on May 27 thereafter, one Shapley purchased said lot nineteen, and received a deed therefor, reciting a consideration of one hundred dollars. After this, said suit was regularly transferred to the-circuit court of Barton county, and, thereafter, at the-April term, 1881, of said court, the firm of ‘ ‘ Cherry & Davis,” also creditors of said Sharp, in a separate and distinct claim, caused themselves to be added as parties plaintiffs to said’pending suit; and at the samé time said plaintiffs also caused said Shapley to be made a party defendant; and the said Catherine having died insolvent .her legal representatives were also brought in as parties-defendant, and thereupon an amended petition was filed accordingly. Subsequently, at the April term, 1882, another .amended petition was filed, upon which the case-was finally tried. • This petition, in its general scope and object, was similar to the original petition, except as before stated, that it incorporated said Cherry & Davis as a new party plaintiff with a separate and distinct claim (nearly three times as large as the aggregate amount of all. five-of the original plaintiffs), to said pending suit; and also made said Shapley, and the legal representatives of said Catherine, deceased, new parties defendant; and then proceeds to charge, in substance, that Shapley’s said purchase of said lot nineteen, with the hotel property thereon, was made in May, 1878, long after the-commencement of the suit, and with full notice thereof, and the facts aforesaid ; and was only a pretended purchase, for a merely nominal consideration of one hundred dollars, none of which was really paid ; and was under a sham mortgage to a fictitious grantee, and merely for the purpose of clouding and incumbering the record title to said property for the benefit of said Smith, and — 679 — that immediately thereafter said Shapley took possession thereof and commenced and continued to collect the rents and profits at from twenty-five dollars to thirty dollars per month. The petition also further charges that said lot nineteen, with its rents and profits, in the hands of said Shapley, now represent in part the said property so fraudulently conveyed by said Sharp, deceased, to defraud his creditors, and as such properly chargeable with payment of said debts. The petition then concludes with the prayer that said Webb City property may, by decree of court, be adjudged “trust property” in the hands of defendants, and that the same may be sold to satisfy the claims of plaintiffs ; and that an account may be taken of the rents and profits of the premises that have been collected and received by said Shapley, and that he may be adjudged to account for and pay over the same to plaintiffs, and for all other proper relief. To this petition defendants, Shapley included, filed an answer of general denial; and also an abortive attempt to set up and claim, for said William Sharp, a homestead in the real estate so fraudulently conveyed and so sought to be subjected to the payment of said debts. The cause was submitted to the court upon the pleadings and the evidence ; whereupon the court, after considering the same, made a special finding and decree, the material parts of which are to the effect following: Among other things the court found that the original plaintiffs, on the twenty-third of October, 1877, commenced the suit, and filed with the recorder of deeds the statutory notice thereof; that in January thereafter, the defendant, Catherine Smith and husband, gave one Johnson a‘mortgage with power of sale on said lot nineteen, in said Webb City, to secure a note for $79.50, due in thirty days ; and that in May following, at a sale thereof thereunder, said Shapley purchased the same; that subsequently, in April, 1881, said Cherry & Davis, — 680 — as creditors of said Sharp, with a separate and distinct claim, caused themselves to be added as a party plaintiff to said pending suit, and at the same time said plaintiffs also caused said Shapley to be made a party defendant. The court, thereupon, further found that said Shapley was, and is, a purchaser pendente lite of said lot nineteen, and ever since, his said purchase in May, 1878, had been in possession, collecting and receiving the rents and profits thereof, to the amount of five hundred dollars, and that the monthly rental value thereof was ten dollars. The court also found that said conveyances from said Sharp to his said daughter, Catherine, were voluntary and without valuable consideration, and fraudulent and void as to his creditors; that the said lots ten and nineteen in said Webb City, were “ trust property ” in the hands of said defendants, and as such chargeable with the payment of said debts and claims; that the original plaintiffs having first commenced proceedings to charge said property with the payment of their debts were entitled to be first paid out of the proceeds thereof. The court thereupon adjudged and decreed that said lots ten and nineteen, or so much thereof as necessary to be sold to pay said debts; and if said sale failed to realize enough to pay the same, then it was further ordered that the sum of five hundred dollars, and the accruing rents of the premises (lot 19), or so much thereof as necessary be recovered, levied and collected of the goods and chattels of the defendant,] Shapley, and that execution issue therefor. It was also further ordered that out of the proceeds should be paid, first, the costs o! the suit; second, the claims of the original plaintiffs ; third, the claim of said Cherry and Davis ; and the balance, if any, be paid over to the defendants, or to such of them as showed themselves entitled thereto. The defendant, Shapley, having filed unsuccessful motions for new trial, and in arrest, appealed the cause to this court. — 681 — The material and controverted questions arising on this record, under the findings, it will be perceived, are what effect, if any, is to be given to the mortgage, executed by Catherine Smith and husband, to Johnson, and the purchase thereunder by Shapley, pending the suit: (1) as against the original, plaintiffs ; (2) as against the intervening plaintiffs pending the suit, but after said purchase by Shapley; and (3) whether said Shapley, in any event, under the findings, is personally liable foi the rents and profits so collected by him. Before proceeding further, it may be proper to remark that the issues tendered by the amended petition, touching the actual notice of said suit, and the allegations thereof, as well as the want of good faith and valuable consideration in said mortgage, and purchase thereunder, on the part of said Shapley, or said Johnson, are wholly ignored by the court in its said findings ; and that the case, as we understand it, is made to turn upon the simple fact, without more, that said Shapley was, and is, a purchaser pendente lite. We take it also from the finding that Shapley was, and is to be treated as a purchaser for value, and without actual notice of the imputed fraud. We may premise also that a fraudulent conveyance is valid between the parties thereto, and as a general • rule is only voidable' as to creditors, who by timely and proper proceedings, by suit or otherwise, acquire some specific lien on the property conveyed, prior to a 'bona fide purchase thereof by a third party for value, and without notice. Bump on Fraud. Con. [3 Ed.] 533 to 537; Ibid. 444, 458, 460, 491, 492. The general rule, also, as we think, is that while the property itself is liable to such creditors in the hands of ■such a purchaser “pendente lite,^ he is not otherwise personally liable therefor, or for the rents and profits thereof. Wade on Notice, secs. 375, 337, 338 and 339. It is, however, otherwise with a fraudulent grantee, or a purchaser from him, without value or with notice of the ■ — 682 — fraud. Such a grantee or purchaser not only holds the property itself in trust for such creditors, but are also personally responsible to them for the proceeds or the rents and profits thereof, by proper and timely proceedings for that purpose. Bump on Fraud Conv., 608, 610, 612. Tested by these rules we think and so hold that the rulings of the trial court in the case at bar, was and is correct, so far as the original plaintiffs and the property itself are concerned. But so far as the plaintiffs who intervened in the pending suit after Shapley’s said purchase ; and so far as Shapley’s personal liability for the rents and profits are concerned, we are of opinion that the court erred, and so hold. The object and purpose of the doctrine of Us pen-dens and the statutory notice thereof, in a case like the present, as we understand it, is to secure and hold the property in litigation, for the benefit of the plaintiffs in that suit against any sale or incumbrance thereof by the defendant pending litigation, to their prejudice, and in order to have that effect, and be just to all parties, the petition should be definite, as to the parties to the action, the property to be charged, and the nature and amount of the claims to be secured. Wade on Notice, sec. 353 ; R. S., 1879, sec. 3217. The rule doubtless would permit the introduction of a new party, as co-plaintiff, who, by reason of his interest in the claim, then pending, was a necessary party litigant thereto; but, certainly does not extend to other creditors, who have separate and distinct claims of their own, so as to prejudice the rights of a prior intervening purchaser for • value and without notice. If Cherry and Davis, instead of having themselves incorporated into the pending suit, had, as they might have done, instituted an original and independent suit of their own as such creditors, there could have been no place or pretense for the doctrine of “Mspendens” as Shapley’s purchase had been made more than three years prior thereto. While such a cred — 683 — itor, in the discretion of the court, may properly he incorporated as a new party plaintiff in a pending suit by other creditors, still it must be done subject to the prior rights of bona fide purchasers for value, as well as the original plaintiffs therein, as was actually done in this case. If, in this case,' it had been shown by the evidence and so found by the court, as it was expressly charged in the amended petition, that said mortgage and purchase under which Shapley held was a sham and a pretext, or that he was a party to, or had notice of the fraud, then the judgment would have been correct. But such, for some reason, was not the finding of the court. When the case goes back for new trial, as it must, the court can be asked, upon proper testimony, to pass directly upon these issues so clearly presented in the pleadings,. • and find and judge accordingly. It may be well to add that the above rulings in the case at bar in no manner impair or conflict with the ruling in the case of Turner v. Babb, 60 Mo. 342, to which our attention has been called; or the subsequent case of McIlrath v. Hollander, 73 Mo. 105, which followed it, or the more recent casé, not reported, of McIlrath v. Frederick, where the same doctrine is recognized. The case at bar is clearly distinguishable from those cases. In those cases the judgment, whose validity and regularity was called in question in a subsequent suit between other parties, was one of compromise of the original cause of action and between the original parties, by the terms of which the prevailing party got a judgment coupled with a charge upon the real estate in controversy. That charge, not being paid by the party whose duty it was to discharge it, the property in question was afterwards sold in compliance with said compromise judgment, and a third party became the purchaser, and the contest arose in another suit .between this purchaser at execution sale and the purchaser pen — 684 — dente lite in the original compromise suit, to which h<f was not made a party as in the case at bar. No appeal or writ of error was taken from the compromise judg- • ment under which the execution purchaser claimed, and it remained unreversed and in full force. And it was held in the above cases that in such a contest between such parties that the purchaser pendente lite of property actually in litigation, though for a valuable consideration and without notice express or implied, in point of fact, was bound by the decree affecting said property which might be rendered against the person from whom he derives title, though that decree was one of compromise between the parties, and other and different from that contemplated by the pleadings. To that doctrine, as applied to the facts of those cases, we still adhere, as announcing the correct rule. In the case at bar the trial court, under very different circumstances, went much farther in that direction than this court has ever gone. Here the judgment complained of is the judgment in this suit between these parties, and not in another and collateral proceeding between third parties. Here no rights of third parties predicated upon this, or any collateral judgment have intervened to complicate and embarrass the inquiry ; but the contest now before us is exclusively between these plaintiffs and one of the defendants, who has appealed directly from said judgment to correct whatever material error there may be therein to his prejudice. In such a case, apon appeal to the Supreme. Court, any material error to the prejudice of the appellant, rendering the judgment erroneous or void, manifestly may be reversed upon the real merits of the case, as between such parties. For the reasons above stated we are of opinion that the trial court erred,- as hereinbefore stated, and its judgment herein is accordingly reversed and the cause remanded for further proceedings as herein directed. All concur, except Henry, 0. J., not sitting.