Cochran v. Stewart

• Decision Date: 13 April 1875
• Citation: 21 Minn. 435
• Court: Minnesota Supreme Court
• Parties: DAVID M. COCHRAN <I>vs.</I> L. M. STEWART & another.

21 Minn. 435

DAVID M. COCHRAN vs. L. M. STEWART & another.

Supreme Court of Minnesota.

April 13, 1875.

Appeal by defendants from an order of the district court for Hennepin county, Vanderburgh, J., presiding, refusing a new trial.

Cornell & Bradley and L. M. Stewart, for appellants.

Lochren, McNair & Gilfillan, for respondent.

GILFILLAN, C. J.¹

This was ejectment to recover real estate in the city of Minneapolis. Both parties claim under a mortgage executed June 6, 1857, by William Clendenin to Harvey Vinal, to secure two notes, one for $216, due in six months, and one for $1,416, due in one year. On August 31, 1858, Vinal assigned the notes to this plaintiff, and executed and delivered to him an assignment of the mortgage, with a blank space for the name of the assignee. On September 10, 1860, this plaintiff commenced, in the district court in Hennepin county, a suit against William Clendenin, Ivory F. Woodman, Reuben Fenderson, Simon P. Snyder and William K. McFarlane, asking for a foreclosure of the mortgage and a sale of the property, and at the same time caused the proper notice of lis pendens to be recorded. A decree for foreclosure and sale was entered May 11, 1863, under which the plaintiff bought the property.

It appears that these notes were assigned to plaintiff to secure a debt due him from Snyder and McFarlane. In May, 1859, they wrote to plaintiff, offering to pay him $1,600 of their indebtedness to him, if he would re-assign to them the notes and mortgage; and the plaintiff thereupon wrote to J. C. Williams at Minneapolis, authorizing him to arrange the matter for him, and sent him the assignment of the mortgage, the blank space for the name of the assignee not having been filled, and the notes, with blank spaces for the name of the assignee indorsed thereon. These Williams delivered to Snyder and McFarlane, upon receiving from them a draft for $1,600 in favor of Woodman and indorsed by him. Williams was induced to deliver the notes and assignments, and accept the draft, which proved to be fictitious and utterly worthless, by the false and fraudulent representations of Woodman and Snyder and McFarlane. They then inserted in the assignment of the mortgage the name of I. F. Woodman as assignee, and in the assignments of plaintiff, indorsed on the notes, the name of William Fenderson as assignee, and Woodman then executed an assignment of the mortgage to Fenderson. The latter appears to have had no actual interest in the matter, but to have been used by Woodman and Snyder and McFarlane as an instrument merely to hold the title.

On June 29, 1859, Woodman executed his promissory note to Jesse L. Wetmore for $500, and at the same time, to secure it, procured Fenderson to execute to Wetmore an assignment of the mortgage and the two Clendenin notes. The assignments of the mortgage were recorded March 27, 1863. The consideration for the Woodman note, and of the assignments to Wetmore as security, was the transfer, by the latter to the former, of the note, for about $500, of one Allen, secured by mortgage. Wetmore, or rather the agent who transacted the business for him, had no notice or suspicion of the manner in which Woodman and Snyder and McFarlane had obtained the notes, and assignments of the notes and of the mortgage, from plaintiff's agent Williams. On June 4, 1863, Wetmore, under the power of sale contained in the mortgage, foreclosed, and the property was, at the foreclosure sale, bought by William S. Chapman, who conveyed to the defendant Stewart.

It being found by the court below, the cause having been tried without a jury, that the assignments of the notes from plaintiff were obtained by the fraud of Woodman and Snyder and McFarlane, and that Fenderson had no actual interest in the transaction, but was used only as a cover by the others, neither of those parties acquired any title to the notes which could not be devested by plaintiff's repudiation of the contracts of assignment. So far as they were concerned, he repudiated such contracts by bringing the foreclosure suit to which they were made parties. Wetmore was not made a party to the suit, and whatever title he acquired was not affected by the decree. If he was the owner of the notes and mortgage when he made his foreclosure, the purchaser at his foreclosure became the owner of the real estate, notwithstanding the proceedings in the foreclosure suit.

As the notes were past due when transferred to Wetmore, they were not entitled to the protection accorded to negotiable paper indorsed before due. The assignments must be governed by the rules applicable to other personal property. Where the owner of personal property parts with it, under a contract of sale which he has been induced by fraud to make, the contract of sale, though not absolutely void, is voidable at the election of the vendor. This election must be made before the fraudulent vendee sells to a bona fide purchaser. The principle upon which the bona fide purchaser is protected, is that when one of two innocent persons must suffer through the fraudulent act of a third person, he who has voluntarily placed such third person in position to commit the fraud must be the sufferer. See Parker v. Patrick, 5 Term Rep. 175; Clough v. London & N. W. R. Co., Law Rep. 7 Exch. 26; Pease v. Gloahec, Law Rep. 1 P. C. 219; White v. Garden, 10 C. B. 918; Masson v. Bovet, 1 Denio, 69; Mowrey v. Walsh, 8 Cowen, 238; Fassett v. Smith, 23 N. Y. 252; Rowley v. Bigelow, 12 Pick. 306.

Some of the text-books and cases state the proposition that this protection to the bona fide purchaser does not extend to a case where the act of the party selling to the innocent purchaser, in obtaining the property, amounts to a felony. In Rowley v. Bigelow, 12 Pick. 306, where there had been a sale induced by fraud, the court say: ...