Summary
Appeal from the Chancery Court of Holmes County.
Hon. R. W. Williamson, Chancellor.
The case is stated in the opinion of the court.
Conceding, for the purpose of argument, that the sale was fraudulent, the decree was, nevertheless, erroneous in not allowing J. W. McLean to be reimbursed the sums paid out in discharge of encumbrances and taxes, and in the erection of valuable improvements, less the rents received by him.
All the authorities agree that where the fraud is only constructive, the grantee upon the setting aside of the conveyance will be reimbursed the purchase-money paid by him, without reference to whether it was applied in satisfaction of debts of the grantor or not, and also all sums laid out in the extin-guishment of liens.. It is said by counsel that the rule is different in cases of actual fraud (dolus mcdus), and that the grantee in such cases, will not be reimbursed to any extent whatever. The authorities are almost unanimous in holding that reimbursement will be decreed for all sums paid by the grantor in lifting encumbrances, less rents received by him. Some authorities allow reimbursement where the purchase-money went in satisfaction of mere general creditors. See King v. Wilcox, 11 Paige, 595 ; Kaupe v. Bridge, 2 Eobt. 462 ; Bennett v. Dennison, 5 Johns. Ch. 41; Scanlon v. Bender, 3 How. Pr. 186; How v. Camp, Walker (Mich.) 429 ; Toole v. Hoit, 14 N. H. 61; Mead v. Combs, 19 N. J. Eq. 114 ; Lamb v. Stone, 11 Pick. 532 ; Hastings v. Spencer, 1 Curt. 504; Thomas v. Goodwin, 12 Mass. 140; Drury v. Cross, 7 Wall. 299 ; Carey v. Brown, 2 Otto, 171; Clements v. Moore, 6 "Wall. 299 ; Rowe v. Cockrell, 1 Bailey Eq. 136.
In all the cases we have cited, as in the case at bar, the payments made by the grantee, which went to discharge encumbrances upon the property conveyed, or general debts due by the grantor, were made after the sale? and by persons not connected with, or beneficially interested in the encumbrances extinguished or debts paid. But we would invite the attention of the court to a class of cases in which the mortgagee himself becomes the grantee of property, in consideration of the surrender and cancellation of the mortgage. Where such a conveyance is vacated, whether for actual or constructive fraud, the mortgage is at once reinstated, and the parties restored to the position they occupied before the conveyance. This course is universally adopted in this class of cases. Worthington v. Wihnot, 59 Miss. 612 ; Irish v. Clayes, 10 Yt. 81; Stedman v. Vickery, 42 Me. 132. The reason of this is, that the mortgages are free from vice, are not connected with the fraud which instigates the conveyance of the equity of redemption, and are entitled to stand upon their own merits, and until they are actually paid. It would, on the one hand, be to permit the creditors to speculate upon the mortgagee’s fraud to allow them to set aside the conveyance to him, by which alone his lien was paid, and at the same time claim that this same vacated conveyance should still operate as a payment; while, on the other hand, to reinstate the lien, does justice to the mortgagee, imposes nothing upon the property which Was not there prior to the conveyance,, and gives to the creditors everything of which they were defrauded, and nothing more. Let us suppose, now, that the debtors in this case had conveyed the plantation in controversy, without the intervention of a trustee or a chancery court, directly to the Waltons, Lehman, Abraham & Co., T. H. & J. M. Allen & Co., and Richardson & May, in satisfaction of their mortgages.
These liens, amounting to the full value of the property, the conveyance could not have been successfully assailed. But suppose further, that the property was worth much more than the amount of these mortgages, and that actual fraud was shown in the transaction. Upon setting aside the conveyance to these creditors, under the rule as stated in all the authorities, their mortgages would be reinstated, and stand as valid encumbi’ances in all respects. Now, we ask, what is the diffei’ence, so far as the rights of creditoi’s are concenxed,. between the case supposed, and a case where some third person buys the equity of redemption, and then pays off the eneumbi’ances? Is he guilty of any more fi’aud or more moral turpitude than the mortgagee is, who fraudulently obtains a conveyance of the equity of redemption? Nor are the mortgages any more actually extinguished in one case than the other. If a third person buys the equity of redemption, and then pays off encumbrances, he is not a mere volunteer or stranger ; for his title, though acquired through actual fraud, is not void, but only voidable,at the instance of creditors. He, therefore, pays the mortgages because of his title to the property. But if this title is set aside, his payment of the mortgages must also be set -aside, for it would be iniquitous to hold that he had no title to the property, and at the same time to hold that mortgages discharged by him, because he •supposed he had a title, should stand as though finally extinguished. When his title is taken from him, mortgages paid by him must stand revived, or he must be reimbursed what he paid in satisfaction of them.
It is again submitted that the same rule must apply, because the same equity exists, where a third person buys the equity ■of redemption, and then discharges encumbrances, and where :a mortgagee fraudulently acquires the equity of redemption in satisfaction of his mortgage, and afterwards loses the property. In both cases the creditors take the property subject to the mortgages. ‘ ‘ Courts of equity do not affect to consider fraud in the light of crime, for it is not their province to punish, nor have they any censorial authority. They interfere in cases of fraud in a civil, and not in a criminal, point of view.” Kerr on Fraud, 43.
It is a universal rule that he who seeks equity must do ■equity, and it is equally applicable in all cases where relief is •sought in equity against damage and injury from fraud. In granting relief the court proceeds on the ground that the transaction ought never to have taken place, so that the rights of "the parties are, as far as possible, to be placed in the same .situation in which they would have stood if there had never been any such transaction. Kerr on Fraud, 336.
Thus far we have considered this case upon the theory that J. W. McLean was guilty of actual fraud. We now say that if there was any fraud at all it was merely constructive fraud. •Under the decisions in Fulton v. Woodman, 54 Miss. 158, and •Grant' v. Loyd, 12 Smed. & M. 191, no fraud can be predicated of the sale of the land, because it sold for a fair and full price, and the agreement under which it was sold (if one existed), was not necessarily fraudulent. If any fraud was done it was in the reception, by J. W. McLean, of certain of the assets of G. A. McLean & Co., supposing, of course, that it had been shown that he received such assets. But inasmuch as he was a creditor himself to the amount of $3,000, and did not receive assets to a greater amount, it follows that all of the property of the debtoi’S, both real and personal, has gone into the hands of their creditors, and that by nothing done, or agreed to be done by him, has one dollar of their assets been unlawfully diverted. It is but just to suppose that if J. W. McLean did stipulate for these assets to be placed in his hands, it was with the idea that by reason of being a creditor, he was entitled to them. Certainly, no actual intent to perpetrate a fraud can be deduced from conduct which did not, and could not, in the nature of things, result in fraud.
We now ask the attention of the court to a third class of decisions, which rest upon middle ground, and of which Boyd v. Dunlap, 1 Johns. Ch. 481, is the leading. They hold that if actual fraud be not clearly and satisfactorily made out, but the circumstances are nevertheless so suspicious that the deed ought not to stand, the courts will not take so decisive a step as to set aside in tolo the assumed title, but will set it aside upon reimbursement to the grantee of the sum actually due him, or expended by him for the benefit of the property. Dunn v. Chambers, 4 Barb. 381; Alley v. Connell, 3 Head, 579.
We respectfully submit, that upon the principle announced in the above cases, J. W. McLean is entitled to be reimbursed, even if we are wrong in our contention that a fraudulent grantee will be indemnified for encumbrances extinguished by him, for the reason that in the worst view which can be taken of the case, it can only be said that the circumstances are suspicious. We say, moreover, that if J. W. McLean did use. the assets of G. A. McLean & Co., with the understanding that when he was repaid what he had expended the property should be divided among the six brothers, the complainants have no right to subject the whole property to their debts, but can only have a lien fastened upon it for their benefit, for the value of the assets of their debtors, shown to have been invested in it.
Interrogatories were filed under sect. 1943 of the Code, and served on complainants by mailing copies to .them and handing copies to their counsel. The purpose was to show that there was a combination between complainants (especially the original non-resident complainants) and J. N. McLean, Jr., by which J. N., Jr., directly or indirectly, was to receive a ,pecuniary benefit if this suit resulted favorably to them. Many of the non-resident complainants failed or refused to answer the interrogatories, and as to them defendants moved to dismiss the cause. The court overruled the motion, holding that a commission should have issued to take their answers, as in the case of depositions. If this view be correct, sect. 1943 would be meaningless, becaüse defendants could, without and independent of that statute, have taken the deposition of any party to the suit, and notwithstanding that section, defendants could have taken the depositions of the complainants in the ordinary way. The statute was designed to afford a summary and expeditious means by which'a party to a suit could obtain the testimony of his adversary. But the statute contemplates no commission. It makes it the duty of the parties to whom the interrogatories are propounded to answer them. They must prepare their answers, swear to them, and file'them with the clerk. We insist that the course pursued by defendants was in accordance with the statute, and that the chancellor erred in overruling this motion.
J. JE. Qwin, argued the case orally.
filed an elaborate brief, discussing the evidence and deducing conclusions of fact therefrom.
made an oral argument.
We assume that the court is satisfied of the existence o,f a •conspiracy by which J. W. McLean was to use the assets of the firm of G. A. McLean & Co., the annual crops of the plantations, and the mules, stock, etc., to pay off certain valid encumbrances, eking out the fund so derived with money of his own, and that he was to look for reimbursement to the products of the farms ; that he was to obtain title through a fraudulent sale under the encumbrances and hold in secret trust for the family. Our position is, that if any one of the following propositions be correct, actual fraud being shown, the decree cannot be reversed, while appellants must show that all of them are unsound before they can overthrow our case here : —
1. A purchaser in actual fraud is not entitled to reimbursement for expenditures of his own funds in paying off valid encumbrances, even where such payment was not part of the fraudulent agreement. If driven from this, which we think •cannot happen, we fall back on another, viz.,
2. A purchaser in actual fraud is not entitled to reimbursement for expenditures of his own funds in paying off valid en■cumbrances where it was part of the fraudulent agreement that he should so pay. If wrong in this, we say —
3. A purchaser in actual fraud is not entitled to reimbursement of his own funds in paying off valid encumbrances, where it was not only part of the fraudulent agreement that he should so pay, but also that he should hold the property until its usufruct yielded him compensation. If mistaken in this, we say —
4. A purchaser in actual fraud is not entitled to l’eimbursement for expenditures of his own funds in paying off valid encumbrances where it was part of the fraudulent contract that he should pay them, in part, and where he did accordingly, pay them in part, out of the assets of the debtor turned over to him for that purpose, mixing funds. If this is also unsound, then we say
5. A purchaser, in actual fraud, who has simply denied fraud and lost on that issue below, cannot expect this court, after his failure in that experiment, to volunteer relief to him and order an account to determine the amount of his expenditures for reimbursement, when he has not asked it in his answer. Our last proposition is :
@. Where the facts show, as in this case, full reimbursement out of the assets of the debtor,, and the income of the property fraudulently conveyed, an order for an accounting would be idle and useless and will not be made.
It is the Statute of Frauds wFich is to be construed in this case,— that section of it which denounces covinous conveyances as “ clearly and utterly void ” as to third persons. We think no decision can be found in the books which antagonizes our •first position, when the mind of the court is held to the construction of that statute as the business in hand. It is only when their attention is attracted from the plain terms of the statute to a consideration of the hardship to the fraudulent grantor, that a few of the courts- have stepped from the solid highway of logic into the Serbonian bogs of loose sentiment.
The decisions arrange themselves in classes. All concur in allowing reimbursement where there is constructive fraud only. Nearly all concur in refusing it where the payments were previously agreed upon as a means of effecting the fraud. It is doubtful if any case can be found to-.dissent from this on a fail-view of the facts. All the well considered opinions give full effect to the Statute of Frauds, and deny indemnity or reimbursement for any purpose whatever when there is fraud in intent. Some allow it for payments made, after the fraudulent 'title vested, to lift valid encumbrances and not made in pursuance of the original scheme of fraud, thus giving partial effect to the statute. A middle class allows it where the proof of actual fraud is doubtful, assimilating this to constructive fraud. This’ class can furnish no reason, does furnish none, and has none to furnish. Another class allows it where the attacking creditor demands an account of rents and profits and a personal decree, or claims the value of the property fraudulently conveyed, and demands a decree in personam against the fraudulent grantee, as trustee by operation of law for his use. A very small class refuse all remedy to the attacking creditor for the amount of the proceeds of the property, where it has been sold by the fraudulent grantee, thus confining the scope of the execution of the Statute of Frauds to the corpus of the property. All the cases protect the fraudulent grantee in any rights he had to the corpus of the property before, independent of, and disconnected from, the fraud.
If the fraudulent scheme was that Jesse, in order to defeat and defraud the unsecured creditors, should obtain title, through the trustees, in deeds given to secure valid debts, and he did so obtain title, it is “ clearly” void and can stand for nothing, so far as we are concerned. As to us, he got nothing by his title, though it is good'as against his vendors. He paid his money to get their title, and he got it. But the creditors protest, after they have caught him, against being compelled to pay him back what he paid iu the effort to cheat them. If the McLeans had owned the property, unencumbered, and conveyed it to him in fraud, a Mississippi court would hardly allow him reimbursement as against other creditors, although the vendors may have applied the money in discharge of other debts, though one or two cases in other States go to this length. Well, it is not possible to draw a distinction which ■will constitute a difference. A deed, fraudulent in design, is bora dead and cannot stand as security for anything. Subro-gation cannot be invoked, except in virtue of something done because of the conveyance, and, to that extent, it must depend on the conveyance which is attacked. Here the conveyance attacked is that from the trustees. If it falls, all its ragged habiliments fall with the corpse.
The averment that Jesse paid his own money to relieve the estate of valid encumbrances, and which were in'the way ot appellees, and that to repay him would leave them in no worse condition than they were in before, is the magnet used by appellants to draw the attention of the court from the statute. In the first place, we deny the fact that-he did so pay his own money without reimbursement. In the next place, we say if he did, he did it in the effort to defraud us, and that the law •denies him any indemnity.'
In support of our views, we cite Sands v. Uadwise, 4 Johns. 356 ; Bean v. Smith, 2 Mason, 252 ; 2 Tucker’s Com. 443; Thompson v. Bickford, 19 Minn. 17 ; Davis v. Leopold, 87 N. Y. 620 ; Railroad Co. v. Soutter, 13 Wall. 523 ; Sto-vall v. Bank of Memphis, 8 Smed.- & M. 305 ; Thompson v., VanVechten, 27 N. Y. 577 ; Garland v. Rives, 4 Rand. 307 ; Boyd v. Dunlap, 1 Johns. Ch. 480 ; Poague v. Boyce, 6 J. J. Marsh. 84 ; Jones v. Read, 1 Humph. 345 ; Williamson v. Goodwin, 9 Gratt. 506; Parker v. Holmes, 2 Hill, 95 ; Miller v. Tollison, Harp. Eq. 119 ; Bowie v. Free, 3 Rich. Eq. 403 ;Dickinson v. Way, 3 Rich. Eq. 412 ; 1 Tred. 340 ; Weden v. Hawes, 10 Conn. 54; Qrowninshield v. Kitlridge, 7 Mete. 523; Bank v. Wheaton, 8 Me. 373 ; Short v. Tinsley, 1 Mete. (Ky.) 404; Bryant v. Young, 21 Ala. 272 ; Moore v. Tarleton, 3 Ala. 444 ; Banks .v. Knight, 27 Ala. 336 ; Smith v. Uorkwright, 28 Minn. 27 ; McMeekin v. Edmonds, 1 Hill, .292 ; Brown v. McDonald, 1 Hill, 306; Borland v. Walker, 7 Ala. 269; Halbert v. Grant, 4’. B. Mon. 581; Faulke v. McFarlane, 1 Watts & S. 298; McUorkey v. Graff, 23 Pa. St. 321; Bleakley’s Appeal, 66 Pa. St. 187 ; Henderson v. Hunton, 26 Gratt. 926 ; Ticknor v. Wiswall, 9 Ala. 305-; Holt v: Alamer, 34 N. J. Eq. 187 ;- 1 Curt. 347 ; 2 Watts, 67; Montgomery v. McGuire, 59 Miss. 196; 40 Mo. 233; Bump on Fr. Conv. 594; 3 Washb. on Real Prop. 296; 38 Barb. 309; 14 Johns. 493; 19 How. 115; Rob. on Conv. 547; 44 Iowa, 379 ; 7 Bush, 59; 2 Har. & G. 193; 2 Hill, 56 ; 4 Rich. Eq. 197 ; 2 Pick. 136 ; 34 Miss. 88 ; 13 Col. 168 ; 23 Col. 236 ; 3 Watts, 230; 3 Head, 578 ; 1 Curt. 504.
If it was part of the fraudulent arrangement that Jesse should pay off the trust debts for their use, it must be held as if his-brothers and his father had paid them, and they surely would not be reimbursed. It was done by him, if done at all with any part of his own means, as a mere accommodation to them. Practically, it was a loan to them, and he must rest for repayment upon the insecure foundation of the fidelity of his co-conspirators in the fraud.
The motion in the record to dismiss as to those complainants, who failed to answer the interrogatories filed in the clerk’s office pursuant to Code, sect. 1943, was properly overruled, because:—
1. It plainly appears there was not reasonable time.
2. There appears no bill of exceptions, and non constat, but the chancellor took proof and was satisfied there was not reasonable time.
3. The notice of the fact and the object of the filing is insufficient.
4. The copy of the interrogatories was mailed, with no time to be crossed by attorneys, or to allow of preparation by them of advice or consultation.
5. The section is part of the general plan of obtaining testimony, and the interrogatories should have gone under a commission.
argued the case orally.
Syllabus and headnotes are prepared by the reporter or publisher, not the court, and are not part of the opinion.
