Hayward v. Smith

• Decision Date: 15 February 1905
• Citation: 187 Mo. 464,86 S.W. 183
• Parties: HAYWARD et al. v. SMITH et al.
• Court: Missouri Supreme Court

86 S.W. 183

187 Mo. 464.

HAYWARD et al. v. SMITH et al.

Supreme Court of Missouri, Division No. 1.

February 15, 1905.

FRAUDULENT CONVEYANCES — EQUITY — ACQUISITION OF LIENS — PURCHASERS WITH NOTICE — DEFENSES — APPEAL — LAW OF THE CASE.

1. Where, on a prior appeal of a suit to cancel a deed and to set aside certain conveyances subsequent to a fraudulent release of a deed of trust, the Supreme Court held that if plaintiff, in order to clear its title, purchased a mortgage note which had been made to defraud plaintiff, instead of attacking the validity thereof, and then attacked the deed sought to be set aside, etc., plaintiff would be entitled to relief under the evidence, and, after remand, plaintiff amended its complaint to conform to such suggestion, such decision as to plaintiff's right to relief under the same facts was the law of the case, so that defendants were not entitled to claim that plaintiff did not come into equity with clean hands.

2. Where, in an action to set aside certain fraudulent conveyances, plaintiff was not in pari delicto with any of the wrongdoers, it was not precluded from purchasing a mortgage lien on the property in controversy, which had been executed to defraud plaintiff, and use the same to fortify its title as against subsequent purchasers with notice.

Appeal from Circuit Court, Greene County; T. J. Delaney, Special Judge.

Action by James Hayward, assignee of the Ætna Loan Company, and another, against Samuel P. Smith and others. From a decree in favor of plaintiffs, defendants appeal. Affirmed.

A. F. Butts, for appellants. Tatlow & Mitchell, for respondents.

LAMM, J.

The Ætna Loan Company was an incorporated building and loan association, and after the commencement of this suit made a general assignment to Hayward. S. I. Haseltine is the trustee in a deed of trust securing to L. A. Haseltine, on real estate in Crescent Addition to the city of Springfield, Mo., a note executed by one Rooker for $16,000, reduced by credits to about $4,000, and assigned to the Ætna Loan Company. Among the parcels of land covered by said trust deed is lot 28 in Crescent Addition. Hayward, as such assignee, and S. I. Haseltine, as such trustee, prosecute this suit to cancel a quitclaim deed made by L. A. Haseltine to the defendant Samuel P. Smith prior to the assignment of said note, releasing said deed of trust as to said lot 28; and further seek to set aside certain conveyances of lot 28 made to defendants Butts and Robertson subsequent to the release, to the end that the deed of trust be restored to life and vigor as a paramount and valid record lien. Here, once before, under a somewhat different caption (see 154 Mo. 404, 55 S. W. 633), the cause was sent back with the law of the case settled on the then record, but with no adjudication of the facts, and with leave to plaintiffs to file an amended bill to bring their case within the views of this court on the law. When the cause went below, defendants took a change of venue, a special judge was selected, an amended bill was filed to meet the views of this court expressed in the former appeal, to which Hayward as assignee was made a party plaintiff, issue was joined by answer and reply, and on second trial the same result was reached as in the first, viz., a decree for plaintiffs, from which defendants again appeal.

On the bill as it stood on the first appeal the plaintiffs sought, on a mere assignment of the Rooker note, to strike back at a prior release of lot 28 from the deed of trust securing it, and to cancel the release for fraud, mistake, and nondelivery. In this condition of things this court, following recognized doctrine, held that the bare right to maintain a suit in equity for relief against fraud already accomplished against an assignor was not assignable. This court held further that, as the original bill was not framed on the theory that the relief sought in canceling the release was to vindicate any independent right of the loan company in lot 28 existing prior to the assignment of the note to it, it was bad on demurrer, since it did not appear that other property covered by the deed of trust was not ample to prevent injury to the Ætna Loan Company as the mere owner of the alleged secured paper. But having the eye of a court of conscience on the facts disclosed by the record then before it, this court did not order the bill dismissed. To the contrary, it pointed out the exception to the general rule, thus: "If the assignee has an interest in the thing independent of the assignor, and the fraudulent act lies in the way of the assignee's attainment of his independent right, he may acquire the assignor's right to sue to remove the obstacle, and a court of equity will entertain it." It was because of this exception to the rule (which exception precisely fitted the facts then before the court) that the court further said in effect on the former appeal that the loan company had, before its purchase of the secured note, and independent right in lot 28 which needed vindication, and that the loan company could buy the mortgage note and use it to clear its title to lot 28; the trouble being that the bill as it stood at the first trial nisi mentioned this independent right only incidentally, and by way of narrative, as a fact in the history of the quitclaim deed attacked, but did not plead such independent right as a constitutive element in the cause of action, and predicated no relief on the existence of such independent right.

When the plaintiffs filed their amended bill, they responded with warmth and intelligent alacrity to the gracious and suggestive leave to amend given by this court. The bill as amended is a voluminous pleading, and in most of its essential features and allegations is the same as the bill before this court on the former appeal, and in the former opinion sufficiently set forth. It added, however, allegations which, condensed to their substance and effect, set forth that the Ætna Loan Company bought the mortgage note in question from L. A. Haseltine, and he sold it to the loan company at the instance of its beneficial owners, his two brothers, for the very purpose of protecting an existing independent right then held by the loan company in lot 28. The origin and character of this independent right, having once been gathered from the record and fully spread in the printed reports of this court, need not be again stated, since the former and this opinion must be read together, and since the finding of facts hereinafter set forth gives all needed light.

To this amended bill the defendants filed a joint amended answer, consisting of admissions, denials, and affirmative matter. The scope of the new matter pleaded was, in broad outlines, to the legal effect that the Rooker note, assigned by L. A. Haseltine to the loan company, was a mere incident in an alleged elaborate scheme of the Haseltines to defraud their creditors, was without consideration, that the loan, company purchasing it with full knowledge of its sinister character and all the ramifying details of the fraud, had thereby ratified the fraud, and hence came into court with unclean hands.

The findings of fact and conclusions of law based thereon by the learned special judge, Hon. Thomas J. Delaney, are so full and satisfactory that they are incorporated herein, as follows:

"The court finds from the evidence that on the 17th day of October, 1891, S. A. and S. C. Haseltine were the owners in fee of lot 28, in Crescent Addition (the lot in controversy), and other property; that on that day a judgment for $100 was rendered against said Haseltines in favor of the Real Estate Investment Company; that said cause was appealed to the St. Louis Court of Appeals, and was pending therein on September 30, 1892. On the last-named day said Haseltines, by deed containing the usual covenants of warranty, conveyed...