Fowler v. Stoneum (11 Tex. 478, 1854)

Wheeler, J.

The record presents a multiplicity of rulings and exceptions, which have been assigned as error. But the view we entertain of the principal questions in the case, which involve the merits of the controversy, and on which its ultimate decision must depend, will dispense with the necessity of considering all these various rulings, which relate to questions of practice and the admissibility of evidence, and will become immaterial, by our judgment on the merits.

The rulings of the Court, which it is deemed material to consider, are 1st. The striking out of certain portions of the defendants’ answer; 2nd. The rejection of evidence offered by the defendants; and 3rd. The refusal of instructions asked by them.

1. The propriety of the ruling on the sufficiency of the answer, depends upon the inquiry, whether it was competent for the defendants, being, as appears by their answer, purchasers with notice of the alleged fraudulent conveyance from Hal-stead to Stoneum, to avoid that conveyance on the ground that it was made to defraud creditors. This involves an inquiry as to the true construction of the second Section of the Act to preventfrauds and fraudulent conveyances. (Hart. Dig. Art. 1452.) This statute embraces the substance of the 2nd Section of the statute of 13 Eliz. ch. 5 and 27 Eliz. ch. 4. It is proper, therefore, to consult the decisions of the English and American Courts, upon the construction of those statutes, in determining upon the construction to be given to our statute upon the same subject. By the statute of 13th Elizabeth, gifts of goods and chattels, made to defraud creditors, were rendered void as against the persons defrauded thereby. The statute of 27th Elizabeth was made to prevent fraudulent conveyances of lands, to defeat subsequent purchasers. (Rob. on Fraudulent Conveyances, Ch. 1, Sec. 1, n. a, b; 2 Kent, Com. 440.) Our statute embraces both objects. It declares that “ Every gift, grant or “ conveyance of lands, slaves, tenements, hereditaments, goods “ or chattels,” &c., made “ to delay, hinder and defraud creditors of their just and lawful actions, suits, debts,” c the principles laid down by this Court in Lancaster v. Do“lan, the defendant has no claim to protection under it as a “ purchaser.” This case was decided after a very able and full discussion of the construction which ought to be given to this statute, and is now considered as having settled the law, on this point, in Pennsylvania. The Chief Justice, in delivering the opinion of the Court in it, shows by a course of reasoning, and by language that cannot be resisted, or easily forgotten, the injustice and iniquity that would necessarily follow from permitting a voluntary grantor to defeat his own conveyance, by making a subsequent sale of the land, because he is paid for it. He says, (1 Rawle, 246,) “ It is admitted that a ■ ‘ voluntary conveyance is good between the parties; and it is “ a common principle of equity, that an assignee with notice, “ must abide by the case of the assignor. But the pretended “ equity of a subsequent purchaser with notice, even as against “ a volunteer, would spring from an act, the consequence and “ design of which would be to enable the donor to cheat the “ donee. The purchase would be an act of collusion, and all “ the fraud would be on the side of the purchaser.” “ If the “ defendant in the present case had notice of the plaintiff’s con- “ veyance at the time he bought, or before he paid his money, “ there seems to be no circumstance which he can lay hold of, “ that would seem to relieve him from the imputation of fraud, “ which is so clearly shown here by the Chief Justice, to exist “ in such a case, on the side of the subsequent purchaser. It “ certainly cannot be considered a sufficient apology and justi- “ fication for him, havingfull notice, that he purchased, because “ the plaintiff had joined with Register in taking a conveyance “ from the latter for the purpose of defrauding his creditors. It “ is only the party who is likely to be injured by such convey- “ anee that can claim to have it annulled ; but if he does not “ choose to stir in the matter, why should any other be permit- “ ted to interfere % Surely no good can result from it. The “ peace and well being of the community is not affected by the “ act, so as to make it a public offence; and therefore, to permit “ a person who has no concern in the matter, to take the land “ from the party to whom it has been conveyed by the most “ solemn, wilful and deliberate act of the owner; and in effect, “ against the will of the grantee, to give it back in whole, or in “ part, again to the grantor, by paying him its full or half value, “ would be introducing a very extraordinary principle into our “jurisprudence, for regulating and transferring the rights of in- “ dividuals.- If such an interference were sanctioned, it would “ be productive of a new source, and continual state of strife “ and litigation. Besides the deed from Register to the plaintiff, “ being admitted by the Court below, and by every one, to be “ perfectly good and binding, as between the parties to it, to “ permit the grantor, by selling the land to one with notice, to “ set it aside, would involve the strange anomalism of enabling “ him to do by indirect means what he is prohibited from effect- “ ing directly. It may also be remarked that to permit this to “ be done, would be in contradiction to every principle of “ public policy, which makes, the act of the fraudulent grantor “ binding upon him, so far as he or his representatives are con- “ cerned, with a view to deter from and discourage such fraudu- “ lent acts. But if he can sell the land to whom he pleases, he “ is in effect the owner of it still, and has forfeited, or lost noth- “ ing by his fraudulent conduct. The law, however, has no such “ regard for him as to enable him, either directly, or indirectly, “ to annul his own conveyance, though fraudulent, with a view “ to promote his interest; and it is only where he has afterwards “ sold and conveyed the land to an innocent purchaser without “ notice, for a valuable consideration, that the law will interpose “ and set the voluntary, or fraudulent conveyance aside, in order “ to prevent a loss from falling on such innocent purchaser. “ It is, therefore, out of regard to this latter, and not the gran- “ tor, that the law deals thus with the fraudulent conveyance.” (5 Watts, 380, 381.)

To this reasoning there is no answer in any authority to which we have had reference: and it seems to us, that to admit the opposite doctrine, would be to hold out a powerful motive and inducement to the practicing of those frauds which it was the object and intention of the statute to prevent; and would thus defeat the great purposes of public policy in which it had its origin.

We therefore conclude that the defendants, being purchasers with actual notice of the prior conveyance, are not protected by the statute: and that the Court did not err in adjudging the answer, in so far as it sought to avoid that conveyance on the ground that it was fraudulent as to creditors, insufficient.

The question we have now been considering was decided by this Court in the case of McClenny v. Floyd. (10 Tex. R. 159.) That case, however, was decided without argument upon this point; and, at a time, when the presure of business afforded little opportunity to examine the authorities. It has been fully argued in the present case, and its importance, and the attention bestowed upon it by counsel, have seemed to -require a more critical examination; which has resulted in confirming us in our former opinion.

In the case referred to, the conveyance from McClenny was treated as fraudulent. But it was immaterial, as to the parties then before the Court, whether it was fraudulent, or merely voluntary. In either case it was binding and effectual to pass the title as between the parties; as the authorities, to which we have referred, abundantly show.

2. The principal question before the jury, upon the issues in the present case, was, as to the character of the instrument of the 12th of June, 1844, whether it was a mortgage or not. The Court held that it was not, -upon its face, a mortgage. If it was not a mortgage on its face, but was, in form, a conditional, or an absolute sale, it is too well settled to admit of a question, that parol evidence was admissible to show that it was, in fact, intended as a security for a subsisting indebtedness on the part of the grantor, and was, consequently, in substance, a mortgage. How, then, it can be supposed that the evidence, offered to prove such indebtedness, was irrelevant; or what good reason there could be for the exclusion of evidence, by which it was proposed to show, that at the date of the instrument, there was a settlement of accounts between the parties and an ascertained, antecedent indebtedness on the part of the maker, of the identical sum stipulated by the instrument to be paid by him, it is not easy to perceive. This was proposing to prove the fact, which is universally admitted to be the principal test, to determine whether the instrument was a mortgage or not. (Stamper v. Johnson, 3 Tex. R. 1; Stevens v. Sherrod, 6 Id. 294, and authorities there cited.) If this testimony had been admitted, it is scarcely possible to conceive that any mind could have resisted the conclusion, that the instrument was really given and intended as a security for the payment of money ; and was, necessarily, a mortgage. It would seem, therefore, that there was error in excluding the evidence.

But the ruling upon this question becomes unimportant, in the view we entertain of the remaining question, upon the true import and character of the instrument itself.

3. It remains to inquire whether the ruling, upon instructions asked by the defendants, that the instrument of the "12th of June, 1844, was not, on its face, and in effect, a mortgage, was correct. And, to determine this question, it is essential to ascertain what was the true character of the instrument, and, if in our legal nomenclature, it has a place and name, to ascertain what is its distinctive character and appropriate name.'

It may be the most convenient method of arriving at a satisfactory conclusion on this point, in the first place, to see what it is not. We may premise, that it must be either an absolute or conditional bill of sale, a contract to sell or convey, or a mortgage. Our legal vocabulary affords no other specific designation by which it may be supposed to be appropriately characterized.

It has not been, nor can it be, pretended that it is an absolute bill of sale. Its terms, and several stipulated conditions, import the contrary. It is not a conditional sale; for it does not presently pass the title: whereas a conditional sale passes the title to the vendee, in the first instance, with the reservation to the vendor of a right, to repurchase the property, at a fixed price, and specified time. (7 Cranch, 218; Luckett v. Townsend, 3 Tex. R. 119; Thompson v. Chumney, 8 Id. 389.) It is not a bill of sale, absolute or conditional from the plaintiff to Halstead ; for it does not pass, or profess to pass the title to the latter. On the contrary, it declares that the title is, and is to remain in the former. Neither is it, by its terms, or in form, a sale from Halstead to the plaintiff: for it declares that the title theretofore had been and was in the latter. Not being a conveyance in form, it cannot be made such by extrinsic evidence. Parol evidence is admissible to show that a deed, or bill of sale absolute, or conditional on its face, is a mortgage; but not e converso. (6 Watts, 130.) If an instrument does not contain the essential requisites of a conveyance, valid and effectual, in itself, to pass the title, it cannot be made so by extrinsic evidence. In fine, it evidently is not, in form or substance, either an absolute, or conditional sale. It does not purport to be a sale, or pass, or profess, per se to pass the title; and, therefore, it is not, and cannot be a conditional sale. In form it is a contract on the part of the plaintiff, to convey the property to Halstead, upon the performance of certain conditions, or stipulations, thereafter to be performed by the latter. But so regarded, being an executory contract for the sale of slaves, it would seem to be subject to the objection, that it comes within the operation of the first Section of the statute of frauds, and was not obligatory upon the plaintiff, because not signed by him. But, that this is not, really and truly, the character of the instrument, in fact and substance, will be apparent by attending to one or two of its stipulations and provisions. • It stipulates for the payment, by Halstead to Stoneum, of a sum of money, in annual instalments; and it further stipulates, that the negroes shall remain in the possession of Hal-stead during the time specified for the payment of the money ; but should he (Halstead) fail punctually to pay Stoneum, his heirs, executors, administrators or assigns, the several sums of money therein specified, then Stoneum, and in his absence, his agents, shall sell so much of the property, at public, or private sale, at their option, as will meet the payments according to the tenor of the instrument. And it is further stipulated, that, should any of the negroes die, in the meantime, the loss shall be Halstead’s.

These stipulations, it seems to us, fix the character of the instrument beyond a reasonable doubt. It is impossible to believe that any sane man would stipulate for the privilege of selling his own property to pay a debt due himself from another. It is not to be supposed that any man in his senses, (and it is not pretended that the plaintiff was insane,) would become a party to such an agreement. It admits of no rational interpretation upon any other supposition, than that the title to the property, notwithstanding the declarations in the instrument to the contrary, was," in fact, in Halstead, within the mutual, though private understanding and knowledge of the parties; and that the real intention of the instrument was to give a lien upon it, to secure the payment of a debt due by him to Stoneum. It is plainly inconsistent with any other supposition. If it had been a conditional sale from Stoneum to Halstead, or a contract to sell upon conditions to be performed by the latter; upon breach or failure of the conditions, the former would have been entitled to his property absolutely, discharged of the conditions; and there would have been no reason, or propriety, in his stipulating, himself to perform the condition, of which he alone could require the performance, by the sale of his own property. And the further stipulation, that, in case of the death of any of the negroes, the loss should be Halstead’s, is inconsistent with the idea that they were the property of Stoneum. There doubtless was, for some reason, known to. the parties, but which they have not disclosed by the instrument, a secret trust and confidence subsisting between them, and a mutual understanding that the property, though really Halstead’s, should be held out to the world as belonging to Stoneum ; and hence they resorted to the contrivance of this novel instrument, to avoid a disclosure of the true state of the case. But the instrument itself furnishes indisputable evidence of its real character, notwithstanding the efforts of the parties, by their recitals and declarations, to conceal it. It evidently was, in fact and substance, a mere security ; and the law is, that where the instrument is, in substance, a security for the payment of money, no management or contrivance of the parties, no form or expression in the instrument, will avail to change its real character and effect.

We can entertain no doubt of the real character of the present instrument. But if it were doubtful whether the parties intended a mortgage or a conditional sale, a Court of Equity would incline to consider the transaction a mortgage, as more benign in its operation.

Applying, therefore, to this instrument, the established rules of construction, applicable in such a case, to ascertain whether it is a mortgage or not, which have been too often considered by this Court, and are too familiar to require repetition here we conclude that it must be held, by its stipulations and provisions, to be, in effect and on its face, a mortgage; and that the Court erred in refusing so to instruct the jury.

The petition was framed with a double aspect: asserting a title to the property absolutely, under the contract as a conditional sale discharged of its conditions ; and in the alternative, as a mortgage. The recovery was upon the former aspect of the case. This, in the view we have taken, was error. But the plaintiff was entitled to*maintain his action, in the other aspect of the case, for the foreclosure of the mortgage; and under the prayer for general relief, the appropriate relief might have been administered. But for the better presentation of the merits of his case, it may become necessary for the plaintiff to amend his petition. It contains no averment of the value of the property. And though the Court refused to entertain the demurrer, because the defendant had answered to' the merits, the omission of the averment might have become embarrassing to the plaintiff on the trial. This Court has often held, that exceptions to the legal sufficiency of the petition, in the due order of pleading, should, in general, precede the answer to the merits. But we have never decided, that exceptions, which go to the merits and foundation of the action, cannot be entertained after an answer to the merits. It would be idle to compel a defendant to proceed to trial, and drive him to his motion in arrest of judgment, upon a petition so defective as that, judgment could not be rendered upon it.

The ruling of the Court upon the plea in reconvention was correct, for the reason that the matters pleaded were, at the time of pleading them, barred by the statute of limitations. Eo damages were claimed for the alleged trespass, complained of in the amended answer, filed on the 28th of May, 1849, and referred to by that date in the bill of exceptions; but hire only was claimed for the use of the property, after it came into the possession of the plaintiff; and the ruling of the Court did not deprive the defendants of the benefit of the claim for hire. The reference in the bill of exception, therefore, to this amended answer was, doubtless, a mistake. It should have been to the plea in reconvention, filed in Eovember, 1849; which, for the reason before stated, was rightly adjudged insufficient.

There are other questions presented by the record, the consideration of which, however, may be dispensed with, as their determination is not essential to the present disposition and ultimate decision of the case. The judgment is reversed, and the cause remanded for further proceedings.

Eeversed and remanded.