Laughlin v. Calumet & Chicago Canal & Dock Co.

BAKER, District Judge. After making the foregoing statement, the opinion of the court was delivered by It is claimed that if the bill tiled on March 14, 1882, was tiled in time to obviate the bar of the statute of limitations, the present bill is not barred, nor is the appellant open to the charge of laches in sleeping on his rights. Appellant’s counsel cite and rely on section 25 of the statute of limitations of the state of Illinois (2 Starr & C. Ann. St. 1559). and Herring v. Poritz, 6 Ill. App. 208, in support of this claim. The claim, however, is unfounded, because that bill was not tiled for more than two years after the bankrupt had conveyed the land in question to his brother, who had conveyed the same to Howard, both of which conveyances were of record before the bill was tiled. Besides, the dock company was never made a party to that bill, and, so far as it was concerned, it having acquired the title to the land in controversy for value before any bill was tiled, the tiling and pendency of the bill did not, and could not on the plainest principles of justice, arrest the running of the statute in favor of the dock company. Before the original bill was tiled, the dock company had become the owner by mesne conveyances from the bankrupt and the trustee, under the trust deed, of the entire legal and equitable title to the land. A suit against strangers to the dock company’s title could not impair or vary its rights or title. On January 8, 1878, Henry Wisner and wife made and acknowledged to John X. Wisner a deed for the land in controversy, which was duly recorded in the deed records of Cook county, Ill., on February 28, 1880. This deed purported to be executed for a valuable consideration, and was perfect in form. The deed was executed 7 months and 23 days before Henry Wisner tiled Ms voluntary [444] petition to be adjudged a bankrupt. It purported to convey tbe entire title to the lands in question, subject to tbe incumbrance of tbe trust deed, and it is conceded that it bad this effect unless it can be set aside on one or tbe other of tbe grounds upon which it is assailed. It is urged that no title passed by this deed, because tbe grantor never delivered nor authorized tbe delivery of tbe deed to tbe grantee. This claim is evidently an afterthought, as tbe invalidity of tbe title by reason of tbe nondelivery of tbe deed is not charged, nor even alluded to, in tbe bill. Tbe bill challenges tbe title «conveyed by this deed on tbe ground that, as against the assignee in bankruptcy, no title passed to tbe grantee until tbe deed was recorded, on February 28, 1880, and that, prior to that time, tbe bankrupt had assigned by a proper deed of assignment tbe land in question, with other property, to tbe appellant, as assignee in bankruptcy. For this reason tbe question whether tbe deed was delivered or not was not open to inquiry without an amendment of the bill, and no amendment was asked for or made. But, if this objection was waived, tbe evidence of nondelivery is wholly insufficient to defeat tbe title of a bona fide purchaser for value. Tbe bankrupt, Henry Wisner, alone testified to tbe nondelivery of the deed, and the character of bis testimony, coupled with bis knowledge that the deed bad been placed on record before tbe land was sold and conveyed to Howard, would preclude him from assailing tbe title acquired by a purchaser for value and in good faith. A careful reading of bis testimony leaves but little doubt on our mind that be not only delivered tbe deed, but that be knew of and participated in tbe sale of tbe land to Howard. And, even if there were an allegation in tbe bill of tbe nondelivery of tbe deed, and proof of less questionable character to support it, it could not avail tüe bankrupt or bis assignee. Henry Wisner and wife bad made and acknowledged a deed perfect in form to John N. Wisner, purporting to convey all his right and title to tbe land in question, which was of record when Howard bought of tbe latter; and this deed, duly recorded, was prima facie evidence of delivery by tbe grantor to tbe grantee, and conclusive evidence of. delivery, in tbe absence of clear evidence to tbe contrary, as between them and a purchaser for value, relying upon it, unless such purchaser bad or was chargeable with notice of its nondelivery. Warren v. President, etc., 15 Ill. 236; Grundies v. Reid, 107 Ill. 304; McDaid v. Call, 111 Ill. 298; Quick v. Milligan, 108 Ind. 419, 9 N. E. 392. The bankrupt had executed a deed perfect in form, which bad been properly recorded, and bad remained of record 16-?,- months before tbe land was sold and conveyed to Howard. How tbe deed came to get from tbe possession of tbe bankrupt be does not attempt to explain. He contents himself with tbe naked assertion that he neither delivered it nor authorized its delivery to bis brother, who was tbe grantee therein. Tbe bankrupt did not remain in possession of tbe land; and Howard, tbe purchaser, bad no notice from any source that tbe title of record was not tbe true title. For aught that is shown in tbe record, if tbe bankrupt neither delivered nor authorized tbe delivery of tbe deed, be permitted it to get out of bis possession, [445] and be placed on record, by reason of his negligence and want of care. Where one of two innocent parties must suffer from the negligence or wrongful act of a third, it is fundamental that he who gave the opportunity for the wrong shall suffer the loss. The principle has been more tersely stated thus: “He who trusts most shall suffer most.” These considerations lead to the conclusion that the deed of the bankrupt conveyed his entire right and title to the land in question to John N. Wisner, and that this title has passed by mesne conveyances to tbe dock company, unless the failure to record the deed until after Henry Wisner had been adjudged a voluntary bankrupt, and had executed a deed of assignment to the appellant, defeated such prior grant. Counsel for the complainant strenuously contend that the prior unrecorded deed of the bank-x-upt to his brother did not vest in him any title as against the appellant’s title as assignee in bankruptcy. Section 5046 Rev. St. U. S. provides what rights shall pass to the assignee; “Sec. 5046. All property conveyed by tlie bankrupt in fraud of his creditors; all rights in equity, dioses in action, patent rights and copyrights; all debts due him or any person for his use, and all liens and securities therefor; and all his rights of action for property or estate, real or personal, and for any cause of action which he had against any person arising from contract or from the unlawful taking or detention or injury to the property of the bankrupt; and all his rights of redeeming such property or estate, together with the like right, title, power and authority to sell, manage, dispose of, sue for and recover or defend the same, as the bankrupt had if no assignment had been made, shall, in virtue of the adjudication of bankruptcy and the appointment of his assignee, but subject to tbe exceptions siated in the preceding section, be at once vested in stich assignee.” There is no allegation in the bill that the deed from the bankrupt to John N. Wisner was made with any intent to hinder, delay, or defraud auv creditor, present, or prospective, of the grantor, nor is it alleged that the grantor was insolvent, or in embarrassed circumstances, when the deed was executed by him. And there is no allegation that any of the creditors named in the petition, or who proved their claims, were creditors at the time the deed sought to be set aside was executed. The deed is sought to be set aside on the sole ground that the prior unrecorded deed did not, as matter of law, vest a valid title in the grantee therein as against the appellant’s subsequently acquired title as assignee in bankruptcy. In support of this contention, counsel cite and rely upon Wynne’s Case, 4 N. B. R. 23, Fed. Cas. No. 18,117; In re Dow, 6 N. B. R. 10, Fed. Cas. No. 2,955; Barker v. Barker’s Assignee, 12 N. B. R. 474, Fed. Cas. No. 986; In re Collins, 12 N. B. R. 379, Fed. Cas. No. 3,007; and In re Gurney, 15 N. B. R. 373, Fed. Cas. No. 5,873, and cases there cited. These cases were all decided on the circuit, and most of them apparently support the views of appellant’s counsel, though, two of them seem to hold a contrary doctrine. These cases, however. if in point, could not be followed by us, in view of the language of ihe statute, and the exposition of it by the supreme court. In Warren v. Moody, 322 U. S. 133, 7 Sup. Ct. 1063, and in Adams v. Collier, 322 U. S. 382, 7 Sup. Ct. 1208, it was decided that fraud upon creditors was a necessary element to give the assignee in bankruptcy a right of action to set aside a conveyance, w'here the [446] bankrupt would not have had such right, and that insolvency, of itself, or the fact that the property conveyed constituted more in value than the grantor could rightfully withdraw from the reach of creditors, would not, of themselves, vest such right of action in the assignee. There must be fraud, for so the statute says. Insolvency not known, or only disclosed by subsequent events, or the fact that such events showed that the property conveyed was an undue part of the estate of the grantor, are not to be deemed frauds per se, regardless of a fraudulent intent. As the statute bottoms the right of the assignee to recover upon the existence of fraud, it must be alleged and proved. In Warren v. Moody, 122 U. S. 132, 136, 7 Sup. Ct. 1063, the court say: “It will be noticed that the bill does not attack the deed on the ground of fraud. It does not allege that it was made with the intent to delay, hinder, or defraud the creditors named in the bill, or any other creditors of Kennedy. It does not allege that there are no other creditors than those named in the bill, or any creditors who became such after the making of the deed. The sole ground on which it proceeds is that the deed is a voluntary deed, and is void as against the persons who were creditors of Kennedy prior to the making of the deed. It is claimed that the plaintiffs, as assignees in bankruptcy, represent the debts of these creditors for the purpose of the suit, and, no fraud in fact, or intent to commit a fraud, or to hinder or delay creditors, being alleged in the bill, the case is not one in which the plaintiffs can set aside the deed as being a deed of property conveyed by the bankrupt in fraud of his creditors, even though the conveyance may have been invalid under the statute of Alabama.” The deed sought to be set aside in the present case was not invalid under the statute of Illinois (1 Starr & C. Ann. St. 591). In Hardin v. Osborne, 94 Ill. 571, it was said: “When a bankrupt had conveyed land prior to the time he was adjudged a bankrupt, and the deed remained unrecorded, no title would pass to the assignee, or as against the purchaser holding under a prior unrecorded deed; and, so far as this jurisdiction is concerned, we regard it as settled that the assignee takes no better or greater title as against an unrecorded deed than was held by the bankrupt.” And it is incontrovertible that Henry Wisner, the bankrupt, could not successfully assail the title conveyed to John N. Wisner on the sole ground that the deed executed by him had been left unrecorded. The same doctrine is affirmed in Yeatman v. Institution, 95 U. S. 765, and Stewart v. Platt, 101 U. S. 731. In the case last cited it is said that: “The failure to file a mortgage does not impair its validity as between the mortgagee and the mortgagors, or the assignee in bankruptcy of the latter. The assignee can assert, in behalf of the general creditors, no claim to the proceeds of a sale of the property, if the bankrupts of themselves could not have asserted it in a contest exclusively between them and the mortgagee.” The record shows that within the time prescribed by the statute (section 5057, Rev. St. U. S.) the assignee took no steps to set aside the deed in question. There is the direct evidence of the assignee himself to the effect that he deliberately and understandingly elected not to assert any right to the property. He testified: “I made all the inquiry possible at that time as to the indebtedness and value of the property. The unpaid amount, with the accumulated interest, stands on the schedule; and my opinion was, as I remember it now, that it was about a stand-off — property worth just about the debts.” [447] He never placed the deed of assignment on record, and the evidence shows that the present suit is being prosecuted at the solicitation of the bankrupt, who has paid all the costs and expense of the suit. Under these circumstances, the assignee is not only bound by the statute of limitations, but he is now estopped from asserting a right to the premises against a bona ñde purchaser for value. It is for him to determine whether or not in the given case he will assert his right to the property. He may elect not to charge the estate with the burden of taking charge of property which he deems to be of no value above the liens upon it. This election he must exercise within a reasonable time, and a failure to do so as against third parties dealing with the property in good faith will be construed as an election not to assert a claim to the property. After he has, as in this case, deliberately elected not to assert any claim to the property, he cannot come into a court of equity, and, in spite of laches and acquiescence of the most pronounced character, invoke its aid to wrest from a bona fide purchaser for value the premises in controversy. Sparhawk v. Yerkes, 142 U. S. 1, 12 Sup. Ct. 106; Taylor v. Irwin, 20 Fed. 620. In view of what we have already said, it is not necessary for ns to determine whether or not the sale and conveyance made by John P. Wilson, as trustee, by virtue of the trust deed, were authorized by its terms, and passed to the purchasers a valid, legal 'title to the premises. Such sale and conveyance at least operated to invest the purchasers with the title to the premises as incumbrancers holding under an unforeclosed mortgage. They have the right in equity, as against the assignee, to keep the incumbrances on foot for the protection of the legal title acquired under the deed of the bankrupt: to John as. Wisner. We are of the opinion that the suit is barred by the statute, and that the laches of the complainant also presents an insuperable barrier to the maintenance of this suit. It is not necessary further to discuss these questions, because we have; reached the conclusion that the title of the dock company cannot be successfully assailed on the ground alleged in the bill. The decree of the court below is affirmed, at the cost of the appellant.