Kraus v. Haas

• Decision Date: 28 February 1894
• Citation: 25 S.W. 1025
• Parties: KRAUS v. HAAS et al.
• Court: Texas Court of Appeals

25 S.W. 1025

KRAUS v. HAAS et al.

Court of Civil Appeals of Texas.

February 28, 1894.

Appeal from district court, El Paso county; T. A. Falvey, Judge.

Action in attachment by I. Haas and others against Ben F. Levy, in which J. L Kraus interposed a claim to the attached property under a deed of trust executed to him by Levy to secure certain creditors. From a judgment for plaintiffs the claimant appeals. Reversed.

Davis, Beall & Kemp and Peyton F. Edwards, for appellant. Millard Patterson, A. G. Foster, and F. E. Hunter, for appellees.

FLY, J.

This suit arose out of the trial to the right of certain property which was attached by the appellees, and was claimed by appellant as trustee in a certain deed of trust executed by Ben F. Levy to him to secure two debts, — one for $715, due Isaac Levy; and the other for $2,600, due the State National Bank. The answers of appellees claimed the property through their attachments, alleging that it was the property of Ben F. Levy, who was justly indebted to them; that the trust deed under which appellant sought to hold the property was executed by Levy with the intent to hinder, delay, and defraud his creditors, and Kraus was cognizant of the fraud. The facts fail to connect the State National Bank with the fraud, if any, on the part of the mortgagor. It was shown that Isaac Levy was in Chicago when the deed of trust was executed, and did not accept under it until after the attachments had been levied on the property. This is the second appeal of this case, the first being reported in 75 Tex. 109, 12 S. W. 394.

The first assignment of error brings before us for review the first clause of the charge given to the jury by the trial judge, as follows: "Now, if you believe from the evidence by a preponderance of proof that the transfer to defendant of the property by Ben F. Levy was made with the primary intent of placing such property in such a position that it could not be levied on by his creditors, such intent would render this transfer fraudulent and void as to plaintiffs, and entitle them to a verdict for the property." This is, in effect, a charge approved by the commission of appeals, and adopted by the supreme court on the former hearing of this cause. Haas v. Kraus, 75 Tex. 109, 12 S. W. 394. It will be seen from an inspection of this charge that it makes the intent of the mortgagor the controlling issue in the case, regardless of the intent of the trustee or the beneficiaries. This is assigned as error by appellant. This is a question of vital importance to the business interests of this state, and, if preferred creditors are to suffer on account of the secret intentions of the makers of mortgages and trust deeds, the rule ought to be plainly and unequivocally laid down, in order that there may be no misconception in regard to it. When this case was on appeal before, there was no discussion of this point, but it is simply stated that the charge as above copied should have been given. The matter does not seem to have had any consideration. We have examined the decisions of other states on this question so far as they have been accessible to us, and propose to briefly review some of them. The case of Howell v. Bowman, 10 South. 641, an Alabama case, decided in 1892, seems to be directly in point, and is an able and well-digested opinion. In that case Bowman had executed a deed of trust to one Cardon for the benefit of R. T. Ewing. Howell had an execution levied on it as the property of the maker of the deed of trust, and it was claimed by the trustee. The consideration for the execution of the mortgage was a past indebtedness. It was held, as has been often done in this state, that the owner of personal property has the right to prefer creditors by giving them mortgages on it to secure a past indebtedness; and then the court says: "Though the natural effect of the transaction was to hinder, delay, or defraud the grantor's creditors, and though he executed the instrument with that purpose, yet, if the grantee did not participate in such intent, but accepted the conveyance for the sole purpose of securing a bona fide debt of the amount named in the instrument, then the security could not be pronounced invalid because of its effect upon the rights of other creditors, or because of the fraudulent purpose of the grantor. Whether the mortgagee participated with the debtor in an intention to have the mortgage serve the purpose of putting the property included therein in such a position as to secure an unauthorized benefit to the mortgagor, or to hinder, delay, or defraud other creditors, is generally a matter of inference or deduction from the circumstances attending the transaction." The case was reversed, because the trial court failed to present the bona fides of the mortgagee to the jury, instead of the mala fides of mortgagor. In the case of Carr v. Brigg, 30 N. E. 470, the Massachusetts supreme court held that the fraudulent intent of the mortgagor did not affect the rights of a mortgagee who had taken the mortgage in good faith to secure his debt. In Showman v. Lee, 49 N. W. 578, the supreme court of Michigan bases its decision on the good or bad faith of the mortgagee, and not of the mortgagor. In a Kansas case it was held that fraudulent intent on the part of both the mortgagor and trustee would not invalidate a deed of trust unless the beneficiary participated in and was a party to the fraud. Bank v. Ridenour, 27 Pac. 150. The supreme court of Indiana, in an opinion delivered in 1890, says: "It appears that the chattel mortgage was executed to secure a debt due the mortgagee, and hence it was supported by a sufficient consideration. It is a familiar rule that, where a mortgage is founded upon a valuable consideration, it will not be decreed void, unless the mortgagee united with the mortgagor to defraud the creditors of the latter. If there is, in such a case, no affirmative evidence of fraud on the part of the mortgagee, the mortgage will stand." Straight v. Roberts, 26 N. E. 73; McFadden v. Ross, Id. 78. The cases cited to which we have referred are those in which property was mortgaged to secure pre-existing debts. There can be no doubt under our decisions that a debtor in failing circumstances can give a valid mortgage on so much of his property as may be necessary to secure the bona fide debt of a creditor, and we have seen no Texas case where it was held that a mortgage made directly to a creditor, who had accepted the same, could be rendered void by the fraud of the mortgagor alone. The rule is different in deeds of trust where there has been no acceptance on the part of the beneficiaries. In this as well as other states it has been held that where there is no evidence of fraud on the part of grantor or mortgagor the law presumes an acceptance upon the part of him to whom or for whose benefit the instrument is executed, but, when a fraudulent purpose is shown upon the part of the maker, the law will not presume the assent of a beneficiary to such a deed, however much it be for his benefit, for this would put it in the power of the grantor or mortgagor by a legal presumption to render valid his fraudulent act. Ashley v. Robinson, 29 Ala. 112. However this rule may have been, it is now held by our supreme court that in case of a mortgage which has been followed by an attachment that the acceptance of preferred creditors will not be presumed. Milling Co. v. Eaton (decided Feb. 8, 1894) 25 S. W. 614. The bank in the case we are considering did accept. Though the rule be as just decided by the supreme court, the question of acceptance was the one upon which turned the case of Baldwin v. Peet, 22 Tex. 708.

We are of the opinion that the mortgagee or the accepting beneficiary under a trust deed is placed on the same plane with a purchaser, and is included within the broad meaning of the word "purchaser." While it seems to us consonant with reason and justice that the bona fide creditor who has obtained security for his debt should be protected, as well as the purchaser in good faith, still we would hesitate to so express our opinion were we not fortified by the opinion of the court of last resort in this state. In construing the paragraph, "But if it shall appear in such action that the purchaser of any such property bought the same in good faith," etc., the supreme court says: "If we are to take the word `purchaser' in its technical sense, and in the sense in which it is used in the statutes of registration and of frauds, it would clearly comprehend the mortgagees in this case." After citing a number of cases to sustain the above language, it is said: "But the word `bought' is not a technical term, and has a far more restricted meaning. If the signification of the word `purchaser' is to be controlled by the latter term, then a mortgage is not included. One who has taken a mortgage upon property, though he may be a purchaser, cannot be said to have bought, according to the literal meaning of that word. What, then, is the construction of the language? Did the legislature mean to except only such persons as had bought property of the assignor, paying value, and without notice? Or did they use the word `bought' as the equivalent of `purchased' in its enlarged legal sense? We think the latter the better construction. We take it that the equity of a purchaser who has bought and paid for the property absolutely, without notice of an intent to assign, is no higher than that of a mortgagee who has parted with his money, taking merely a lien upon the property to secure its repayment. The legislature did not, we think, intend to make a distinction in cases in which the equities are the same. It is not to be presumed that it designed to make a law manifestly inequitable and unjust. We are of the opinion, therefore, that the mortgagees as well as the purchasers of the absolute title were intended to be protected by the provision under consideration." Hardware Co....