Woodson v. Carson

Macfarlane, J. On the sixth of June, 1893, A. J. Levin by deed of trust conveyed to plaintiff Woodson as trustee a stock of goods, to secure certain creditors therein named. The trust deed recited that said A. J. Levin was indebted to the Saxton National Bank in the sum of $1,651.97; to Annie Levin in the sum of $1,600; to Max Litzitzsky in the sum of $300; to Mark Streicher & Company in the sum of $1,463.95; to John F. Stratton & Son in the sum of $652.75, and to Peabody & Engelsman in the sum of $1,864.86. The deed of trust then recited that if anyone should pay off the whole of the indebtedness within five days from its date,'then the deed of trust was to be void. If not paid, then the trustee was authorized to sell said property if requested to do so by any one of the bene-ficaries and, out of the proceeds realized from the sale of the same, he should first pay the cost and expense of executing the trust, then he was directed to pay first the amount due the Saxton National Bank in full; second the amount due Annie Levin, in full; third the debt due iV[ax Litzitzsky in full; fourth the claim of Mark Streicher & Company in full; fifth the claim of John Stratton & Son in full; sixth the remainder — 526 — of the proceeds, if any, was to be paid to the grantor or his legal representatives. The deed was recorded June 7, 1893, and on the same day plaintiff as trustee took possession of the goods. Mark Streicher & Company and Peabody &Engles-man did not accept the provisions made for them under the deed of trust and on the thirteenth day of June, 1893, commenced suits by attachment against A. J. Levin upon their claims and by virtue of writs issued thereunder, defendant Carson, as sheriff of Buchanan county, levied upon and took the goods from the possession of plaintiff. Plaintiff thereupon commenced this suit of re-plevin under which he regained possession of the property. The attaching creditors were allowed to come in, as parties defendant, and made answer setting up the attachment suits and claimed the possession and right to possession of the sheriff under the writs issued in those cases. They then charged that the deed of trust was fraudulent and the pretended debts secured thereby were fictitious. Defendants admitted the execution and delivery of the deed of trust and assumed the burden of proving that plaintiff was not entitled to the possession of the property in dispute. The evidence tended to prove that the debt of Mrs. Levin, who was the mother of the' grantor, was, in whole or in part, fictitious. There was no evidence tending to impeach the honesty of the other debts secured or to prove that the trustee or any of the other creditors had knowledge or notice of fraudulent character of the debt to Mrs. Levin, or in any manner participated in the fraud of the grantor. The court, after hearing the evidence, directed a verdict for plaintiff, in whose favor judgment was rendered, and defendants appealed. I. Defendants claim the right of possession un — 527 — der the writs of attachment issued some days after the deed of trust had been executed and delivered. It is settled law in this state that property in possession of a mortgagee or trustee under a valid mortgage or deed of trust, is not subject to levy under execution or attachment by creditors of the mortgagor. King v. Bailey, 8 Mo. 332; Young v. Schofield, 132 Mo. 651, and cases cited; Fahy v. Gordon, 133 Mo. 414. It is said, however, that the trustee was not entitled to the possession of the property, until default was made in payment of the debts. Without passing on this objection it is sufficient to say that default had occurred before the property was taken from plaintiff under the writs of attachment, and, at that time at least, he was in the lawful possession, if the mortgage was valid. Sexton v. Monks, 16 Mo. 161. The right to the possession, which is the controlling question in replevin suits, depends upon the validity of the deed of trust. II. The evidence tends to prove that the debt of Annie Levin secured by the deed of trust was fictitious and fraudulent. There was no evidence tending to impeach the bona fides of any other of the secured debts, nor was there any evidence that either the trustee or the other secured creditors had notice of or in any manner participated in the fraud of the mortgagor in respect to the pretended debt of his mother. It has been frequently held by this court, and may be taken as settled law, that if a part of an' entire indebtedness secured by mortgage is fraudulent, the mortgage itself will be utterly void and of no effect. State ex rel. v. Hope, 102 Mo. 428; Boland v. Ross, 120 Mo. 217. These were conveyances made to secure a single creditor, a part of the debt mentioned being fraudulent. They are very different cases from the one in — 528 — band, wbicb secured the several debts of different creditors, one only of which is fraudulent. The former is void in toto because the creditor necessarily participates in the fraud. A mortgage made to secure an honest debt is valid as to the creditor secured, though the purpose and intent of the mortgagor may. have been fraudulent. It is the fraudulent participation of the creditor that avoids the mortgage. If Levin had made to each of these creditors a separate mortgage, each creditor would stand or fall according to the character of the ti'ansaction under which it was made. Instead of doing that he made one mortgage to secure the independent debts of several creditors, but the acts of the several creditors were-as independent as they would have been had a separate deed been made to each; and there is no more reason for avoiding the security offered an honest creditor in one case than in the other. It has been held in this state that an assignment for the benefit of creditors is not wholly void for the reason that some of the debts mentioned are fictitious. Hardcastle v. Fisher, 24 Mo. 75; Pinneo v. Hart, 30 Mo. 569. In the first of these cases Leonard, J., says: “The better way to render them” (deeds of assignment) “effectual in securing the effects of insolvent debtors to their creditors, will be to exclude the fraudulent claimant from any participation in the fund, * * * and letting it stand in favor of honest parties.” The analogy between deeds of assignment, and deeds of trust to secure creditors is sufficiently close to make these cases direct authority for holding this deed valid as to the honest creditors secured, and void as to those whose debts are fictitious and fraudulent in whole or in part. •Jones, in his work on Chattel Mortgages, section — 529 — 336, says: “A fraudulent intent and knowledge on the part of one of two mortgagees to whom a mortgage is made to secure separate and distinct debts does not affect the rights of the other. He stands in the same position as if he had taken a separate mortgage to himself. There are virtually two mortgagees instead of one, with distinct interests; and the fraud which vitiates the mortgage relates to the substance and subject-matter of the mortgage, and not to the parties. The fraud of one mortgagee taints the mortgage debt secured to him, and does not affect the mortgage debt secured to the other.” To the same effect, see Bump on Fraudulent Conveyances [3 Ed.], page 488, and cases cited by each. III. Defendants insist that, if the deed is void as to Mrs. Levin, they, as attaching creditors, are entitled to have their lien take the position in the order of preference she occupied under the deed of trust. Without deciding whether such equitable rights can be settled in an action of replevin, we need only say that in our opinion the right of preference accorded to diligent creditors has never been carried so far as to displace or defeat the Iona fide liens of other creditors previously secured by contract with the fraudulent debtor. The preferences can only apply to unsecured creditors, for those who have secured themselves by contract have already obtained a preference which they are entitled to hold. The grantor by his deed of trust conveyed the entire [property to the trustee for the security of the creditors therein named. The provisions made for the order in which the debts should be paid operate precisely as if the creditors had been secured by independent successive deeds. Each creditor had the right if necessary to have the entire property appropriated to the payment of his debt subject — 530 — only to the priorities provided in the deed. If the debt of one creditor is extinguished by fraud or payment the rights of the others to the entire property are not defeated. It could not with propriety be contended that by payment of one debt the debtor could reclaim an interest in the property or secure subrogation to the rights of the creditor who was paid. If the debtor had no interest the creditor could secure none. But we think this question is put at rest by the decision in Hardcastle v. Fisher, 24 Mo. 75. The deed in that case was an assignment for the benefit of creditors in which preferences were given to some.'of them. Some of the debts provided for in the deed, which were to be first paid, were fictitious and fraudulently put into the assignment by the contrivance of the grantor and those pretended creditors, but without the concurrence or knowledge of the bona fide creditors. In that case, as here, the claim was made by attaching creditors that they were entitled to take the place of the fraudulent creditors and to have the benefit of the preferences given them under the deed. In disposing of this question Leonard, J., who delivered the unanimous opinion of the court said: “The attaching .creditor, however, can not be allowed to stand in the place of the excluded claimant, and take his share of the fund. There is no legal principle upon which we can allow this. The impeached claim is extinguished by the fraud, so far as any participation in the assigned effects'is concerned, and the effect of this in reference to the other creditors is, that the share, that would otherwise have been appropriated to its payment, sinks into the residue for the benefit of those who are entitled to the residue by the terms of the deed.” Counsel for appellant argues with much force that there is such a distinction between a deed of assign — 531 — ment and this deed of trust that the decision has no force as an authority. The deed considered in that case, which was treated' by the court as a statutory deed of assignment, though evidently not so intended by the parties, gave certain creditors preference and authorized a sale of'the property by the trustees and a payment of creditors in the order named. In these particulars it did not differ materially from the deed in question in this case. Some of the preferred debts were fictitious and fraudulent as in that case. The effect of those facts upon the rights of the parties was directly passed upon. Precisely the same question is involved here. We think the decision directly in point and are satisfied with the conclusion reached. In passing upon the identical question, in construing a deed of trust, the supreme court of West Virginia approved and adopted the language of Judge Leonard as quoted above. Cohn v. Ward, 15 S. E. Rep. 141. The judgment is affirmed. All concur.