Conklin v. La Dow

Mr. Justice Bean,

after making the foregoing statement of facts, delivered the opinion of the court.

Upon the facts, the case is clearly and unmistakably with the defendant Lewis McArthur La Dow. There is no pretense that the proceedings in the county court were instituted or conducted for the purpose of actually selling his interest in the premises described in the mortgage, or that Isaac, the pretended purchaser, ever paid a dollar therefor. It is undisputed that their sole purpose was to facilitate the mortgaging of the minor’s interest, and to evade the rule prevailing in this state that a guardian cannot execute a mortgage on the real estate of his ward : Trutch v. Bunnell, 11 Or. 58, 61 ( 4 Pac. 588 ). The attorney who conducted the proceedings says that their purpose was ‘ ‘ to remove any question as to the right to mortgage the minor’s interest. It was not a de *360 vice or scheme which. I suggested, but one which was suggested to me either by Dr. La Dow, by Sharon, or his partner, or by some correspondence with the agent of the Jarvis-Conklin Mortgage Trust Company, or with some attorney of the company ’ ’; and that he did not know whether Isaac, when he bought in the property at the guardian’s sale or afterwards, paid the purchase price. “ My recollection is that he either gave his note for the amount, or made some arrangement with some bank to let him have the money ; but it was understood that whatever he paid should be repaid by a transfer of the property back to the minor, or to someone else, after the mortgage was placed on it. The understanding which I had about the matter, and which I gathered either from conversations with Dr. La Dow or Mr. Isaac, or both, was that either the money should be paid in, or Isaac should give his note for that amount, and that, after the mortgage had been placed on the property, such money should be returned to Isaac if he had paid it, or, if he did not pay it, his note should be cancelled and returned to him, upon his executing a deed either to Lewis McArthur La Dow, or to someone else for the property, which he bid in at the sale. No, I am not sure that he ever executed any note at all.”

In brief, the facts of the transaction are that Frank E. La Dow and the guardian of Lewis McArthur La Dow, being of the opinion that it would be for the interest of the owners of the property, including the minor, to mortgage the same for money with which to construct a brick block thereon, applied through their agent, Dr. La Dow, to, and obtained from, the Jarvis-Conklin Mortgage Trust Company, a loan for that purpose; but as the interest of the minor could not be mortgaged either by himself or his guardian, and as it was desirable to begin work on the building immediately, it was arranged *361 that the note and mortgage should be executed by Frank E. La Dow, Mrs. La Dow, and one C. B. Isaac, a brother of Mrs. La Dow, the money advanced as the building progressed, and that such proceedings should thereafter be had in the county court as might be necessary to vest Isaac with the legal title to the minor’s interest, and thus make the mortgage good under the warranty clause therein. In pursuance of this arrangement, the mortgage was executed and recorded; and Isaac gave to the trust company a bond in the penal sum of $16,000, reciting the fact that the title to a portion of the mortgaged premises had not been perfected in him, and conditioned that if it should be perfected to the satisfaction of the attorneys of the company on or before the 15th of January, 1890, and such mortgage should become a first lien upon the property therein described, the bond should be void, otherwise to remain in full force and effect. The money was thereupon advanced by the mortgage company as needed in the construction of the building, and the proceedings set out in the answer subsequently had.

It was suggested at the argument that there was no evidence that the trust company had knowledge of the character of the proceedings, or of the purpose to be accomplished thereby ; but this contention is so much at variance with the entire circumstances of the case, as well as with the positive testimony of the witnesses, that it is scarcely entitled to serious consideration. The evidence is undisputed that the company made a loan to the defendant’s guardian, and, as security therefor, received and accepted a mortgage on his property given by a party who had no right or title thereto, under an agreement that he should subsequently acquire the title by means of a proceeding in the county court. This is of itself sufficient to indicate quite conclusively that the company had knowledge, through its agents, of the char *362 acter of such proceedings, and of the purpose to be accomplished thereby. But, besides this, Messrs. Mars-ton & Sharon, who were the local agents of the mortgage company at Pendleton, and through whom the loan was made, both testify that they and the general agent of the company at Portland had full knowledge of the whole transaction. Mr. Sharon, who seems to have had the matter of this particular loan in charge, testifies that, “in order to enable the property to be mortgaged, we had proceedings in the county court to dispose of the minor’s interest. The object of the proceedings in the county court was to dispose of the minor’s interest, and get it into the hands of some person competent to sign a mortgage, and we 'got the property into the hands of Charles B. Isaac.” He further says that he advised the general agent of the company at Portland, to whom all applications for loans and abstracts of title were forwarded, that Lewis McArthur La Dow was a minor, and that whatever was subsequently done in attempting to divest him of his title was by the direction and with the full knowledge of such agent; and the attorney who appeared for the guardian says of the proceedings in the county court: “I understood it was a condition which the party advancing the money required. Yes, a condition which they required before they would make the loan.”

Nor is there any merit in the contention that the plaintiff in this suit is entitled to any special consideration on the ground that he is a bona fide purchaser of the note and mortgage for value. The evidence shows that he was an officer of the trust company at the time the note and mortgage in question were executed; that it was past due when assigned and transferred to him; and there is no evidence that he ever paid anything therefor.

Indeed, it is practically admitted by plaintiff’s counsel *363 in their brief that the questions involved on this appeal are of law, and not of fact, for they state the grounds of their appeal as follows : “(1) The court should not have attempted to determine in this foreclosure suit the question of a paramount title in Louis McArthur La Dow. When this title appeared in the case, plaintiff not only moved to strike it out, but asked permission to amend the complaint so as to avoid this question ; and it was error to refuse this motion. (2) The guardian’s sale is sufficient, regardless of whether or not there was a conspiracy to mortgage the minor’s interest, since the entire record shows that it was necessary to sell this land for the support of Lewis McArthur La Dow. (3) The answers both of Lewis McArthur La Dow and Letitia Lombard are a collateral attack on the final judgment of the probate court, and should have been stricken out, inasmuch as they and the testimony,supporting them do not constitute a defense. ”

In support of the first point, counsel rely upon the familiar rule that a title adverse or paramount to that of the mortgagor cannot be litigated in a foreclosure suit. That doctrine has no application to this case. No question of paramount title is involved in the defense of Lewis McArthur La Dow. His defense is that, at the time of the execution of the mortgage, he was, and is now, the owner of the undivided half of the property described therein, and that the whole proceedings leading up to its execution, including those in the county court, were simply a scheme to incumber his property. His claim is not adverse to that of the mortgagor, for Isaac did not in fact pretend to have any title to the mortgaged premises. He was simply claiming to act as the representative of the defendant, and as an instrument for effecting a mortgage upon his property. When he executed the mortgage he did not design to incumber his *364 own property, but that of the contesting defendant. The defense made grows out of the very contract and transaction which form the basis of plaintiff’s suit; and Lewis McArthur La Dow, whose property is sought to be bound by the mortgage, has just as much right to have its validity litigated and determined in this suit as he would have if it had been executed directly by his guardian or by any other person assuming to act for him. The fact that an attempt was made to cover up the real transaction under the forms of law can in no way lessen his rights in the premises. If the proceedings in the county court had been for the purpose of actually selling his interest in the land, a question as to their validity or invalidity could not be tried in this suit. But they were admittedly not for that purpose, but were adopted as a means of effecting a mortgage upon his property ; and it is eminently proper that the validity of such mortgage should be tried in a suit for its foreclosure. The proceedings of the county court are regular, and on their face vest a perfect title in Isaac, the mortgagor. A decree of foreclosure and sale to some innocent purchaser, who might buy relying on the record, would therefore, at least, serve to further complicate matters, if not actually deprive defendant of his title. The record and evidence show that the 'mortgage was intended and designed to be a lien upon the property of the answering defendant; and, in our opinion, he has a right to contest its validity in this suit, and the court committed no error either in overruling the demurrer to his answer or in refusing to allow the plaintiff to dismiss as to him.

It is next claimed that this is a collateral attack upon the judgment and proceedings of the county court, for fraud, and for that reason must fail. But, as between the plaintiff and the defendant Lewis McArthur La Dow, these proceedings are not entitled to the force and effect *365 of the dignity of a judgment. They were purely fictitious, instituted for the purpose of evading a wholesome rule of law, were a fraud upon the court, and cannot therefore be treated as a judicial proceeding. According to the statement made by Solicitor General Wedderburn in his argument in Duchess of Kingston's Case, 20 How. St. Trials, 355, 478, and adopted by Lord Brougham in the subsequent case of Earl of Bandon v. Becher, 3 Clark & F. *479, *510, a judgment “is not an instrument with a bit of wax and the seal of the court put to it. It is not an instrument with the signature of a person calling himself a register. It is not such a quantity of ink bestowed upon such a quantity of stamped paper. A sentence is a judicial determination of a cause agitated between real parties, upon which a real interest has been settled. In order to make a sentence, there must be a real interest, a real argument, a real prosecution, a real defense, a real decision. Of all these requisites, not one takes place in case of a fraudulent and collusive suit. There is no judge. But a person, invested with the ensigns of a judicial office, is misemployed in listening to a fictitious cause proposed to him. There is no party litigating ; there is no party defendant; no real interest brought into question. ’ ’ And so Lord Brougham himself said in Shedden v. Patrick, 1 Macq. 619, 10 Chi. Leg. News, 234 : “If it be proved that there has not been a real suit instituted and appealed, but that there was a collusion and fraud between the parties ; that there was no real plaintiff and real defendant in real conflict together, upon whose case the court below and this house had adjudicated ; if it appear that there was no real trial, no real proceeding, and consequently no, real judgment, but that the court was imposed upon by the fraud of the parties ; that the court was led to believe that there was a contest when there was none; and that there was an *366 opposition of parties when they were really in concert, and leagued for the purpose of deceiving the court to serve their own ends,— then, my lords, I say I am prepared to go to the full length of holding that in this house, as in every other court, a proceeding so instituted, so carried on, and so consummated in a judgment thus fraudulently and collusively obtained — in a word, a fictitious judgment — may be treated as a nullity.”

The case before us falls within the principle thus stated by Mr. Wedderburn and Lord Brougham-. The proceedings in the county court were purely fictitious, gotten up, not for the purpose of obtaining any real decree or order of such court for the sale of the property belonging to the contesting defendant, but to facilitate the accomplishment of an entirely distinct and separate purpose. It was not intended that any questions should be submitted to the court for adjudication, or that it should perform any office in the matter except to approve in a formal way what the parties had already agreed upon. The whole scheme was a pure fiction, by which the court was led to believe that it was adjudicating and determining real questions, properly within its jurisdiction, when in fact the parties had themselves settled and agreed upon just what should be done, and had no intention whatever to abide by or be governed by its decree or order. The machinery of the court was simply used by them to cover up the real truth, and to accomplish something entirely different from what the proceedings on their face purported to be. It would be an anomalous doctrine if, in a suit to foreclose a mortgage upon the property of a minor, he could not question its validity, because, in order to facilitate its execution, resort had been had to a pretended sale of his interest to the ostensible mortgagor, under some fictitious proceedings of the county court.

*367 But it is said that the minor himself was a party to such proceedings, and is therefore' bound by the decree and orders of the court. It is true that it has been held in some instances that a minor is a party to a proceeding for the sale of his property instituted by his guardian, in the sense that he is not required to be served with notice thereof; but we think it may be safely asserted that no court has ever gone to the extent of holding that he cannot question such proceedings in a suit of this kind, when they were fictitious, and instituted for the purpose of avoiding a rule of law designed for his protection.

We conclude, therefore, that as between the plaintiff and the contesting defendant, Lewis McArthur La Dow, the proceedings of the county court are an absolute nullity, and the mortgage in question is void. In coming to this conclusion we do not desire to be understood as intimating that there was any actual fraud intended. It is no doubt true, and the evidence shows, that all the parties acted in the utmost, good faith, believing that it would be for the best interests of the minor to mortgage his property to secure funds with which to improve the same. But that fact does not help the matter, or tend in any way to give validity to the proceedings of the county court or the mortgage sought to be foreclosed : Batts v. Winstead, 77 N. C. 238 . Under the laws of this state, a guardian cannot mortgage the real estate of his ward ; and what he is prohibited from doing directly he certainly cannot do indirectly, by means of a sham sale to some third person : Ferry v. Laible, 31 N. J. Eq. 566.

The defendant Lombard claims to have purchased in good faith a portion of the mortgaged premises from the successor in interest of Isaac, after the execution and recording of the mortgage in question, and after the termination of the proceedings in the county court; and *368 she claims that the mortgage sought to be foreclosed was so tainted with fraud in its inception that the plaintiff does not come into court with clean hands, and therefore a court of equity cannot afford him any relief, even a decree foreclosing the mortgage as against the interests of Frank E. La Dow and Mrs. La Dow. But we cannot concur in this view. There was in fact no actual fraud in the transaction. The note and mortgage represent a loan of money made by the mortgage company. The fact that the scheme which was adopted to secure the mortgage on the minor’s interest was ineffectual to accomplish that purpose as against him ought not, it seems to us, to deprive the plaintiff of the right to foreclose as against the other parties to the mortgage ; and especially so since the question as to whether Mrs. Lombard did not obtain a perfect title, on the ground that the proceedings of the county court, being regular and valid on their face, import absolute verity in favor of a subsequent innocent purchaser for value, is not involved in this case, and could not be tried therein. It follows from what has been said that the decree of the court below must be affirmed, and it is so ordered.

Affirmed .