Ames Iron Works v. Kalamazoo Pulley Co.

• Decision Date: 17 October 1896
• Parties: AMES IRON WORKS v. KALAMAZOO PULLEY CO.
• Court: Arkansas Supreme Court

37 S.W. 409

AMES IRON WORKS v. KALAMAZOO PULLEY CO.

Supreme Court of Arkansas.

October 17, 1896.

Appeal from circuit court, Pulaski county; Robert J. Sea, Judge.

Action of replevin, brought by the Kalamazoo Pulley Company against the Ames Iron Works. There was judgment for plaintiff, and defendant appeals. Affirmed.

In May, 1891, Thomas W. Baird bought of the Kalamazoo Pulley Company, through their agent, C. S. Kelsey, a lot of pulleys, which were shipped to Memphis, Tenn. Baird gave his acceptances for the purchase price. Being largely indebted to the Ames Iron Works, Baird, in June, 1891, confessed judgment in their favor for $2,511, and shortly after executed a bill of sale to the Ames Iron Works for the pulleys in Memphis, in consideration of the satisfaction of the judgment to the extent of $1,200. The Ames Iron Works took possession of the pulleys, and brought them to Little Rock, where they were replevied by the Kalamazoo Pulley Company, upon the theory that Baird had purchased them with intent not to pay for them. In the course of the trial the defendant offered to prove that Kelsey, the agent of the plaintiff, had stated, while in Little Rock representing said plaintiff in the collection of the debt, before the pulleys were replevied, that the plaintiff had sold the acceptances given by Baird for the purchase money of the pulleys, and was only liable on the same as indorsers. Upon the objection of the counsel for plaintiff, the evidence was rejected.

S. R. Cockrill and Ashley Cockrill, for appellant. W. E. Atkinson, for appellee.

WOOD, J.

1. The satisfaction of a pre-existing debt as a consideration for the transfer of goods fraudulently obtained will not, of itself, constitute the bona fide transferee an innocent purchaser for value as against the one from whom they were obtained by fraud. Eaton v. Davidson, 46 Ohio St. 355, 21 N. E. 442; 1 Beach, Mod. Eq. Jur. § 391, note; Sleeper v. Davis, 64 N. H. 59, 6 Atl. 201; Henderson v. Gibbs, 39 Kan. 679, 18 Pac. 926. The reason of the rule, says Chancellor Walworth, is "that a purchaser of the legal title, who receives his conveyance merely in consideration of a prior indebtedness, is not entitled to protection, because he has lost nothing by the purchase." Padgett v. Lawrence, 10 Paige, 180. He has parted with no new consideration, has given up no security or evidence of indebtedness, nor in any other manner changed his legal status, to his detriment, which is the real test. The mere crediting the $1,200, the purchase price of the pulleys, on the judgment of appellant against Baird for $2,511.35, operated as nothing. There was no cancellation or surrender of any written security in this, for, when appellee rescinded the sale and reclaimed its goods on account of the fraud of Baird, the consideration for the credit on the judgment failed, and appellant, as to this, and its debt against Baird, was left in statu quo. Eaton v. Davidson, supra; Sargent v. Sturm, 23 Cal. 359, 83 Am. Dec. 118; Piper v. Elwood, 4 Denio, 165; Adams v. Smith, 5 Cow. 280. At least this transaction alone does not show that appellant's position was changed for the worse. Unless this is shown, the consideration of a pre-existing debt, while good between the parties, will not bring the purchaser within the rule which protects him as a purchaser for value against one having superior equities. A different rule prevails as to the innocent holder of commercial paper taken in payment of a pre-existing debt. He is protected as a purchaser for value. Bertrand v. Barkman, 13 Ark. 150; Harrell v. Tenant, 30 Ark. 684; Winship v. Bank, 42 Ark. 22, and authorities cited. We are cited to cases in Illinois and Wisconsin which hold that, if the rule as just announced be true as to negotiable paper, "a fortiori, is it true also of goods and chattels merely." Non sequitur. The reason the satisfaction of a pre-existing debt is regarded as a valuable consideration for the transfer of commercial paper so as to bring its holder within the rule, and is not so regarded as to goods corporeal merely, is not because of any difference in the consideration itself, for there is no difference. The distinction grows out of the difference in the character or quality of the thing transferred in its relation to trade and commerce. "The necessities of the commercial world," says Judge Kent, "require that bills of exchange and promissory notes should possess some of the attributes of money and exchangeable value; and to clothe them with these attributes and to give parties confidence in their reception, it is necessary to protect them in the hands of a holder for value, from defenses growing out of the dealings of the prior parties." Kent, Comm. 79; Bertrand v. Barkman, supra. It is an "arbitrary rule of commercial policy," which makes the transfer of negotiable instruments in consideration of an antecedent debt good as against the prior equities of the defrauded owner. And while this is the rule established by the great weight of authority, and so decided by our own court (see cases supra), yet there is very high authority to the contrary. Comstock v. Hier, 73 N. Y. 269; McBride...