Pattiz v. Semple

• Decision Date: 24 April 1926
• Docket Number: No. 2274.,2274.
• Citation: Pattiz v. Semple, 12 F.2d 276 (E.D. Ill. 1926)
• Parties: PATTIZ v. SEMPLE et al.
• Court: U.S. District Court — Eastern District of Illinois

12 F.2d 276 (1926)

PATTIZ v. SEMPLE et al.

No. 2274.

District Court, E. D. Illinois.

April 24, 1926.

Kramer, Kramer & Campbell, of East St. Louis, Ill. (Bruce A. Campbell, of East St. Louis, Ill., of counsel), for plaintiff.

Dobbins & Dobbins, of Champaign, Ill., and Gunn, Penwell & Lindley, of Danville, Ill. (O. B. Dobbins, of Champaign, Ill., and H. F. Lindley, of Danville, Ill., of counsel), for defendants.

LINDLEY, District Judge.

Plaintiff seeks to foreclose a chattel mortgage upon the furniture and fixtures of an hotel, purchased from him by one James C. Lewis, June 2, 1924, for $63,500, a part of which constitutes the indebtedness of over $11,000, represented by notes now sought to be enforced under the mortgage, executed at the time of the purchase. Later Lewis procured a decree in the circuit court of Illinois, adjudging the mortgage void because of fraud upon Pattiz' part in making the sale to Lewis. For want of jurisdiction, as this court has previously held, the said decree was void. Shortly after the decree was entered, and relying upon its fidelity, the present defendants purchased the property from Lewis, upon the assumption that the mortgage was void, free of the lien thereof. They now defend upon the ground that the original sale to Lewis, and consequently the mortgage, were fraudulent, that the purchase price and the mortgage were obtained by fraudulent representations upon plaintiff's part, that the damages resulting from said fraud exceed the amount due upon the notes and mortgage, and that they are therefore entitled to have the mortgage canceled. Plaintiff insists that Lewis could not, in selling to defendants, transfer to them such cause of action.

The assignment of a mere right to file a bill in equity for fraud committed on the assignor is void, as being against public policy and savoring of maintenance. But it seems that this rule, as established by the authorities, applies only to a case where the assignment does not carry anything which has itself a legal existence and value, independent of the right to sue for a fraud. It does not apply to a case where such right is merely incidental to a subsisting substantial property which has been assigned, and which is itself intrinsically susceptible of legal enforcement. In such a case the assignee is entitled to maintain an action to set aside a fraudulent conveyance of the property assigned, if his assignor might have done so. 5 C. J. 892, § 57; Smith v. Wright, 49 Ill. 403; Prince v. Dupuy, 45 N. E. 298, 163 Ill. 422; Traer v. Clews, 6 S. Ct. 155, 115 U. S. 539, 29 L. Ed. 471. In the case last cited, in a well-considered opinion, the Supreme Court said: "The rule is that an assignment of a mere right to file a bill in equity for fraud committed upon the assignor will be void, as contrary to public policy and savoring of maintenance. But, when property is conveyed, the fact that the grantee may be compelled to bring a suit to enforce his right to the property, does not render the conveyance void."

The Supreme Court of Illinois in Warner v. Flack, 116 N. E. 197, 278 Ill. 303, 2 A. L. R. 423, said: "The text-writers generally state, and the cases have decided, the rule that a right of action for fraud cannot be assigned at law or in equity. The decisions were based on the ground, first, that such assignments are contrary to the policy of the law against maintenance or champerty; and, second, that they are contrary to the prohibition of the common law against the conveyance or transfer of property in the adverse possession of another. This prohibition no longer exists, and an absolute conveyance of property, real or personal, is not within the reason, of the first ground of objection. Therefore many decisions of the courts are now found which, in the application of the rule, or as an exception to it, hold that a conveyance of property in the adverse possession of a third person under a voidable title carries with it the incidental right of the grantor to maintain a suit in equity to set aside the voidable title. * * * In this state the right to maintain a suit to set aside a title to land obtained fraudulently has been sustained in favor of either the heirs of the defrauded grantor or his assignee in the following cases: Whitney v. Roberts, 22 Ill. 381; Smith v. Wright, 49 Ill. 403; Ross v. Payson 43 N. E. 399 160 Ill. 349; Prince v. Dupuy 45 N. E. 298 163 Ill. 417; Lewis v. McGrath 61 N. E. 135 191 Ill. 401; Rickman v. Meier 72 N. E. 1121, 213 Ill. 507."

Here the defendants were told that the mortgage was void, that a decree so finding had been entered, and that it was no longer a lien. They bought the property in good faith. There was no ratification of the fraud. Under the rules stated, by the conveyance, they received not only the property, but also the incidental right to attack the outstanding mortgage to the same extent that the original mortgagor might have done so.

The sale carried the furniture and fixtures of the hotel and a 12-year unexpired portion of a 15-year lease upon the premises, under which the rental was $1,000 per month for the first 3 years, and $14,000 per year for the remaining 9 years. Defendants charge: That Lewis had never lived in Champaign, where the hotel was located. That he had no knowledge of the facts, except as he obtained it from plaintiff. That he relied upon the truth of plaintiff's statements. That the books of account were altered, padded, and untrue, and did not represent the actual amount of business transacted by said hotel, or the cash receipts thereof. That said books showed a larger and greater income to have been obtained by said hotel than had actually been obtained by it, and that the said Max B. Pattiz had changed and altered said books for the purpose of inducing the said James C. Lewis to purchase said hotel equipment, and to lease said hotel building. That said Max B. Pattiz furnished a statement of the monthly income from guest rooms, coffee shop, pool and billiard room, barber shop, dance hall, and cigar counter, and other sources, made up from...