McClure v. Smith

• Decision Date: 28 March 1890
• Citation: 23 P. 786,14 Colo. 297
• Parties: McCLURE et al. (SCHERRER, Intervenor,) v. SMITH. SAME v. CLOUGH.
• Court: Colorado Supreme Court

23 P. 786

14 Colo. 297

McCLURE et al. (SCHERRER, Intervenor,) v. SMITH.

SAME v. CLOUGH.

Supreme Court of Colorado

March 28, 1890

Appeal from district court, Arapahoe county; ELLIOTT, Judge.

Suits were brought by Smith and Clough against Charles B. and H. C McClure to recover claims for goods sold and delivered. Attachments were issued in these suits, and levied upon certain real estate in the city of Denver. This real estate appears of record in the name of Scherrer, and Scherrer duly filed a plea of intervention in each of the suits, claiming a superior right as against the attaching creditors. He averred in these pleas that, although the deed from the McClures to himself to the premises was absolute in form, yet it was intended, together with a certain defeasance in writing executed at the same time, to constitute a mortgage securing a large existing, and also a contingent, indebtedness. The causes were consolidated and tried to the court upon the pleas of intervention, answers thereto, replications, and evidence offered. The court made specific findings of fact and of law, upon which was predicated a decree in favor of the attaching creditors and against the intervenor. To review this decree the present appeal was taken.

Bennett & Bennett, for appellants.

Perry & Carpenter, for appellees.

HELM C.J.

The present appeal was taken under the act of 1885. No evidence is embraced in the abstract, and therefore a review upon the evidence could not be had. The findings of fact, however, of the court below are properly before us, and, since they are not in any way questioned, will be accepted as conclusive. By the record as presented, we are advised of the following facts: That McClure Bros., being indebted to Scherrer to a large amount, executed an absolute deed conveying the realty in question to him; that in connection with the giving of this deed, and as a part of the same transaction, Scherrer executed in writing, and delivered to McClure Bros., a defeasance; that the two instruments were designed by the parties to constitute, and did constitute, a mortgage of the premises as security for the indebtedness to Scherrer; that the whole transaction, so far as Scherrer was concerned, was characterized by entire good faith in fact; that, immediately upon the execution of these instruments, Scherrer took, and has since retained, possession of the mortgaged realty; but that, while the absolute deed to Scherrer was duly filed for record with the clerk, and recorded prior to levy of the writs of attachment, McClure Bros. failed to record their defeasance. Notwithstanding the foregoing conclusions of fact, however, the court found that as to Smith and Clough, the attaching creditors of McCure Bros., the transaction constituted a constructive fraud, and the deed to Scherrer was void in law. On this finding the decree in favor of the attaching creditors was based, and upon its correctness or incorrectness the affirmance or reversal thereof must rest.

It is obvious that the court below adopted the view that a deed absolute in form, but in reality designed to operate as a mortgage only, is constructively fraudulent, and consequently void in law, as to other existing creditors of the mortgagor even though the transaction contain no element of fraud in fact. This position of the trial judge is supported by well-considered decisions. Friedley v. Hamilton, 17 Serg. &amp R. 70; Manufacturers', etc., Bank v. Bank of Pennsylvania, 7 Watts & S. 335; Smyth v. Carlisle, 16 N.H. 464; Bryant v. Young, 21 Ala. 264; North v. Belden, 13 Conn. 376. But in our judgment the weight of authority favors the view heretofore announced by this court. It was held in Ross v. Duggan, 5 Colo. 85, that, while this method of creating an incumbrance is a conspicuous badge of fraud as to existing creditors, it is not conclusive, and that the bona fides of the transaction may be shown by collateral proofs. It is true that when the mortgagee consents to take an absolute deed, even though, as in the case at bar, he delivers back a defeasance, he makes it possible for the mortgagor to deceive his other creditors. For this reason, such a proceeding is regarded with disfavor, and upheld with reluctance. It would no doubt be wiser, as well as less harmful, if the mortgagee insisted upon having the transaction evidenced by an ordinary mortgage. But, if there be a bona fide debt for which the security is given; if there be no understanding with the mortgagee to hold the overplus, or to hold the property after payment of his debt, secretly, for the benefit of the...