Knoop v. Kelsey

121 Mo. 642 | Mo. | 1894

Ma.cfa.bla.NE, J.

The suit is to set aside, as fraudulent, a deed of trust on a farm of about four hundred acres, situate in Morgan county, made by defendant J. B. Kelsey to Charles C. Nixon, in trust to secure the payment of a note for $3,000 payable to defendant Charles T. Kelsey, and also to set aside a sheriff’s sale of the same land to defendant Huffman, under certain judgments against said J. B. Kelsey, one of which was in favor of plaintiff, for about $1,700, and also the deeds by the sheriff to the purchaser. The deed of trust was recorded prior to the rendition of the judgment. A demurrer to the petition was sustained, and, from a judgment thereon, plaintiff appealed.

The petition is quite lengthy, but the ground upon which relief is demanded may be briefly stated as follows: Plaintiff, and several others, judgment creditors of J. B. Kelsey, procured his right, title and interest in the farm to be sold by the sheriff, under executions issued thereon. The farm was worth $4,000, but was at the time incumbered by the deed of trust above mentioned. At the sale, which was regular in all respects, the land was publicly sold and purchased by defendant Huffman for $285, and a deed in due form was executed, acknowledged and delivered to him, purporting to convey the interest of Kelsey in the land. No fraud or misconduct of any kind, for which the sheriff or purchaser is responsible, is charged.-, The deed of trust, while apparently valid, was, in fact, fraudulent. At the date of the sale the fraudulent character of the deed of trust was not known to either the creditors, the sheriff, or the purchaser, and the sale was made under the mistaken belief, on the part of all persons interested, that it was valid and secured a Iona fide existing debt.

"Under this state of facts plaintiff seeks to set aside the sheriff’s sale and deed, and the fraudulent mortgage, offering to refund the. money paid, and to subject the land to payment of his judgment on the ground of the inadequacy of the price paid, the mistake of the parties as to the true character of the mortgage, and both these causes combined.

The case was once tried upon a petition which charged that only the equity of redemption of Kelsey was sold by the sheriff, and upon that trial the relief prayed for was granted. On appeal this court held, in effect^ that the creditors could not, in terms, sell the equity of redemption, and afterwards assert that, as to them, the mortgage was void, and in effect say there was no equity of redemption. Knoop v. Kelsey, 102 Mo. 294.

The case was remanded and an amended petition was filed charging, as above stated, that the right, title, claim and' interest of the defendant Kelsey only was sold. It was said by this court on the former appeal that “judgment creditors have two remedies against a fraudulent conveyance, be it a deed or mortgage, or a deed of trust in the nature of a mortgage. They may file their bill to set it aside and subject the land to the payment of their debts; or they may sell all the right, title and interest of the debtor, and in that case the purchaser succeeds to all of the rights of the creditors to set aside and avoid the fraudulent convejmnce. Lionberger v. Baker, 88 Mo. 452. A conveyance made in fraud of creditors is, as to them, void at their option. They may affirm it, if they see fit to do so.’7

Judgment creditors undoubtedly have such an interest in the property of their debtor, as would entitle them, upon sufficient grounds, to question the validity of a sale thereof, made by the sheriff under execution. Briant v. Jackson, 99 Mo. 598. It may also be said, as well settled, that, while gross inadequacy pi the price paid for land at a sheriff’s, sale may be a badge of fraud, it is not sufficient alone to avoid the sale. When such a sale is properly attacked, it is the duty of a court of equity to examine carefully all the circumstances, under which, it is made, and very slight evidence of fraud, or unfairness, on the part of the officer making the sale, may he sufficient to demand its cancellation. Briant v. Jackson, supra; Phillips v. Stewart, 59 Mo. 492. There are rare and exceptional eases in which the inadequacy is held to he so gross as to amount to a flagrant abuse of judicial process, and equity has granted relief on that ground alone. Brown v. Railroad, 43 Mo. 294; Coll v. Bay, 106 Mo. 300, and cases cited; Walters v. Hermann, 99 Mo. 532.

It is manifest that the inadequacy of price at this sale was not so gross and unconscionable as to place it in this latter -class of cases. The question then is whether the want of knowledge of all concerned in the sale as to the fraudulent character of the mortgage, without knowledge of fraud on the part of any one, is sufficient, when coupled with the inadequacy of price, to avoid the sale at the suit of the creditors having it made.

As was said on the former appeal, supra, the purchaser of land sold subject to a fraudulent mortgage or other conveyance “succeeds to the right of the creditors to set it aside and avoid it.” The right thereby acquired is a substantial one. The practice of first selling the interest of the owner, and allowing the purchaser to attack the incumbrance thereafter, for fraud, is the common and usual method adopted in this state. While the practice does not commend itself as one calculated to make the most equitable distribution of the debtor’s estate, it is usually adopted and has never been disapproved.

Usually such incumbrances are valid on their face, and the evidence of the fraud, rests only in pais, which requires investigation to establish. It necessarily follows that the amount bid at such sale is, in general, merely nominal, if the apparent equity of redemption is of no value, though, circumstances of suspicion as to the validity of’ a mortgage may be known. The sale is directed by the creditor and he thereby adopts the course he wishes to pursue. Instead of investigating before a sale, as to the validity of the mortgage or other conveyance, he procures a sale to be made to a Iona fide purchaser, who was possessed of no more knowledge than he himself had, receives whatever purchase money is paid, and turns over the investigation, with the attendant expense and uncertainty of results, to him. Afterwards, perhaps years, he learns that the incumbrance can be avoided for fraud. Under such circumstances we are unable to conceive of any principle of equity which would, allow him to repudiate the course he elected to pursue, and to reappropriate to himself the rights he permitted and, in a manner, induced the purchaser to buy, though unadvised as to the value of these rights.

Plaintiff can no more repudiate this sale, than he could, had only the equity of redemption been sold, which under the former decision he could not do. Want of information on the part of the creditor and purchaser as to the fraudulent character of the deed of trust is not a circumstance which, either alone or coupled with inadequacy of consideration, furnishes ground for equitable relief. To grant relief, in such cases, would leave no security to the rights of the purchaser of land, subject to mortgage. The result of such rule would be, that if the incumbrances were valid the purchaser would have them to pay in order to retain the land; if they were invalid he would have to turn the land over to the creditors as soon as the invalidity appeared. On the other hand the creditor could receive, and apply on his judgment, the amount realized on the sale, but if, afterwards, he found that the incumbrance was invalid he could subject it to his judgment. No one could risk bidding on the land under such uncertainty but the creditor himself. The same rule would entitle one who purchased under the mistaken belief that the mortgage was fraudulent; he could, on learning his “mistake,” avoid the sale.

The policy of the law is to uphold execution sales, and secure the purchaser a good title, and to the creditor and debtor the best possible prices for the property sold. It disfavors such uncertainties and speculations as the principle contended for here would permit. The claim made in this petition we think without equity, and if adopted as a rule would operate unjustly to debtors who are honestly insolvent, by virtually turning over their property to their creditors at prices fixed by themselves. The rule heretofore followed in practice, and announced in the former appeal, that the purchaser succeeds to the rights of the creditor to have a fraudulent conveyance annulled we think best secures the rights of all parties. The creditors have their option to pursue this course or to have the cloud removed from the title before subjecting the land to sale, and they should be held to their election in case the sale is fair and regular.

Heintze v. Bentley, 34 N. J. Eq. 565, is cited and relied upon by counsel as being one in which relief was granted on analogous facts. The complaining creditor did, in that case, charge that he was mistaken as to the amount due on the mortgage when the land was sold, and the sheriff’s sale and the mortgage were both canceled. It was found by the court in that case that the mortgage purported to secure a much larger debt than was. actually due the mortgagee, and it was found further that while the sale was ostensibly made to another it was, in fact, made to the fraudulent mortgagee himself. The court says: “If Heintze (the purchaser and mortgagee) were entirely free from blame with reference to the apparent amount of this mortgage, it might not be just for the court to interfere with his purchase, because of the complainant’s mistake.” The court characterized the sale as being “unfair.” The opinion goes on to say that complainant “has lost the advantages which he might have gathered from a perfectly fair sale of these premises, and Wanner and Heintze .(the debtor and the purchaser) are claiming the benefits of an unfair sale, induced by their own wrong.” In the case at bar no unfairness or misconduct of the purchaser is charged. The want of analogy is apparent. Judgment affirmed.

All concur.