Sipley v. Wass.

or for her own benefit." That I understand to be the rule in

this court.

At the time the mortgage to W. H. M. was given, Mrs. Wass was a widow with capacity to mortgage the premises. If we lay out of view the conveyance to her daughter, she held in them an equitable estate in fee, and that estate she conveyed by a mortgage to W. H. M. before the complainant's lien had attached to it. The mortgage, being executed by both mother and daughter before complainant had acquired her lien, must be given its natural preference, unless it is impeachable for fraud or want of consideration, or has lost its place by its holder failing to record it until after the complainant's lien had attached.

The fact that the mortgagee was counsel for the mother in her defence of the action at law prosecuted against her by the complainant upon the Vaughn bond, in which she recovered judgment for so large an amount; that he must have known that the mother conveyed to the daughter pending that suit; and that he took the precaution to have his mortgage executed by both mother and daughter, may possibly be sufficient, as claimed by complainant, to charge him with notice of the fraudulent character of that conveyance and that it would probably be attacked on that score by the complainant. I express no opinion on that point. But such notice does not, of itself, invalidate any mortgage which he might take from both the fraudulent grantor and grantee before an actual lien obtained by the judgment creditor. At any time before complainant's remedial proceeding had reached the point of giving her a lien, he had a right to deal with the depositaries of the title as the actual owners, so long as he was not consciously a party to any transaction tending to hinder or delay creditors. If his mortgage had been executed by Selah R. Wass alone, then, in order to maintain himself upon it, he must have shown that he advanced money or other thing of value upon the strength of her apparent title, and that he was free from knowledge of its fraudulent character. Mingus v. Condit, 8 C. E. Gr. 313. See remarks upon this case in Milton v. Boyd, 22 Atl. Rep. 1078 (at p. 1088), where it is shown that the doctrine of that case was not overruled by Bank v. Cummings, 12 Stew. Eq. 577. Bank v.

Sipley v. Wass.

Cummings holds that if the mortgage by the fraudulent grantee is made at the request, and to secure the debt, of the fraudulent grantor, it is valid as against the creditor who assails the fraudulent conveyance, and so far overruled the result in Mingus v. Condit. This is upon the ground that debtors have the right to prefer creditors, and the giving of the mortgage by the fraudulent grantee at the request of the fraudulent grantor is doing nothing more than what the law would compel the parties to do. This privilege of the fraudulent grantor to prefer his creditors when in a failing condition is confirmed by the recent case of Muchmore v. Budd, 24 Vr. 369.

Laying out of view for the present the failure of the mortgagee to record his mortgage, I think it must stand as a valid lien prior to the complainant's decree, unless it appears that it was given without consideration or for a fraudulent purpose. Under the particular circumstances of the case, I think the burden of showing that is on the complainant. No proof was offered on the subject.

Complainant does not make any allegation of fraud in her bill, but relies wholly upon the charge that the mortgagee had notice of her judgment and of the fraudulent character of the transfer from the mother to the daughter. The mortgagee, in his answer, says that the mortgage was given to him to secure an indebtedness on the part of the two mortgagors to him for professional services, and in that part of the answer which is a cross-bill distinctly alleges that it was given to him for a full and valuable consideration. The complainant, in her replication in answer to this cross-bill, simply declines, for want of knowledge, to admit this allegation, and leaves the mortgagee to make such proof thereof as he may be advised. There is throughout the complainant's pleadings no allegation or hint of fraud or want of good faith in the mortgagee. No proof was offered by the mortgagee of the consideration of his mortgage, and I do not think that in the state of the pleadings and under the circumstances of the case, and for present purposes, any proof of it was necessary. The production of the bond and mortgage duly executed was sufficient, and must be held to be good as against the complain

Sipley v. Wass.

ant, unless it has lost its precedence by failure to be recorded. This aspect of the affair remains to be considered.

The statute (Rev. p. 706 § 22) declares unrecorded mortgages to be void against a subsequent judgment creditor or bona fide purchaser or mortgagee for a valuable consideration, not having notice thereof.

Is the complainant either a subsequent judgment creditor or a bona fide purchaser without notice? There is no allegation in the cross-bill, nor any proof in the cause, that complainant had the least notice, other than that which the record gave her, of this mortgage. She purchased under a decree which gave her a specific lien and directed a sale of the mortgaged premises to pay her debt. In purchasing under that decree she was not bound to look for encumbrances or conveyances affecting the property later than the decree, and the record of such is not notice to her. Her position seems to me to be the same as though her security had been a mortgage from both mother and daughter, executed and recorded prior to the record of that in question, and without notice of it, and she had purchased under foreclosure of her own mortgage without making the other mortgagee a party to the proceedings.

It is well settled that, in order to give a party the position of a bona fide purchaser or mortgagee under the statute in question, he must have parted with something of value on the strength of the apparent title in his grantor or mortgagor. Here all that the complainant has lost or parted with is a credit of $115 on her judgment, being the amount that she bid for the land in question at the sale under her decree. To that extent her judgment is paid and satisfied, and can never be enforced against the judgment debtor. The case discloses no ground upon which she can avoid that result.

The rule is that a person taking a mortgage or conveyance as security merely for the payment of a pre-existing debt, is not a bona fide purchaser or mortgagee, because the debt still remains and the creditor has lost no right which he had to prosecute and recover it. But when the debt is actually paid and discharged by the purchase of the premises, the rule, as I understand it, is

Sipley v. Wass.

otherwise, and such payment and discharge furnish a sufficient consideration to make the grantee or mortgagee a bona fide purchaser or mortgagee. 2 Pom. Eq. Jur. § 749, and cases cited in note 2; American notes to Basset v. Nosworthy, 2 Lead. Cas. Eq. (4th Am. ed.) p. 85 (1887), where the learned editor says: "Where time is given for the payment of a pre-existing debt in consideration of the transfer of real or personal property, and a fortiori where such property is received in satisfaction, the transaction will enure as a purchase for value," citing cases.

In Nugent v. Gifford, 1 Atk. 463, an executor had assigned a bond and mortgage made in trust for his testator, and held by him as an asset of the estate, to the executor's creditor, in payment and discharge of a debt of the executor, and Lord Hardwicke held the assignee to be a purchaser for value, and entitled to hold the asset as against the creditors of the testator, saying (at p. 469): "The third objection is that this is a devastavit, because the consideration was a debt of the executor's own. But I know no rule in this court to warrant that, neither is there any difference between this and money paid down, provided it be done bona fide; a sum of money bona fide due is as good and valuable a consideration as any."

To the same effect is Mead v. Lord Orrery, 3 Atk. 235. In both cases he also held that the fact that the executor was applying the assets to the payment of his own debt was not sufficient notice of a devastavit to charge the party with complicity therein. That part of the judgment has been overruled by later cases. Field v. Schiefelin, 7 Johns. Ch. 150 (at p. 155). But so much of the judgment as holds that the actual payment of a debt and surrender of its security was a valuable consideration, has not been disturbed.

In Padget v. Laurance, 10 Paige 170 (at p. 180), Chancellor Walworth expressed the opinion that the discharge and satisfaction of his judgment by the purchase of property under it, was a sufficient consideration to constitute the judgment creditor a bona fide purchaser of that property.

An examination of the few cases in which the contrary doctrine has apparently been announced will show that, in point of fact,

Sipley v. Wass.

the conveyance was taken as security merely, and not in absolute payment. Such was the case in Pancoast v. Duval, 11 C. E. Gr. 445.

In De Witt v. Van Sickle, 2 Stew. Eq. 209 (at p. 214), Vice-Chancellor Van Fleet says: "Whether the avails of the fraud are held by the vendees of the fraudulent grantee or the fraudulent grantor is a matter of no significance whatever. Creditors havea right to have them sequestered for their benefit, no matter who holds them, unless their right is encountered by a right founded in a superior equity. Paying for them by the mere surrender of a debt due by one of the fraud-doers does not give such right. To divest the right of a purchaser who pays in this mode, merely puts him back where he was before his purchase. His claim remains intact against his debtor. He is not harmed, but simply remitted to his original position." He then proceeds to say that the doctrine of Owen v. Arvis, 2 Dutch. 22, as expounded in Bank of the Metropolis v. Sprague, 6 C. E. Gr. 530 (at pp. 539, 540), would seem to go further and deny the right of the purchaser "even if he is put in a position less fortunate than that he occupied originally."

These cases were decided upon considerations arising partly out of the statute respecting fraudulent conveyances and partly out of our statute respecting assignments for the benefit of creditors, which have no application here, but I cannot help thinking that both are much shaken, if not directly overruled, by the combined effect of Bank v. Cummings, 12 Stew. Eq. 577, and Muchmore v. Budd, 24 Vr. 369, both decided by the court of errors and appeals.

By what was said on this topic in Mellick v. Mellick, 2 Dick. Ch. Rep. 86 (at p. 98), it was not intended to assert that an actual payment and satisfaction of a pre-existing debt would not constitute a valuable consideration, but the language used, unfortunately, was so lacking in clearness in this respect as to lead the court of errors and appeals, in reviewing that case, to understand it as so asserting, and that court, in affirming the decree, expressly avoided affirming such doctrine.