53 Ark. 537 | Ark. | 1890
The account of Senter & Co. against Riggan was for advances made by them to him; there is nothing in the evidence that casts the shadow of suspicion upon the good faith and validity of that claim. The note secured to them by the mortgage was executed by Riggan to Wood, and by Wood endorsed to them before maturity. They took it as collateral .security for a debt due them by Wood and for advances thereafter to be made by them to Wood and to Riggan and Wood’s brother upon Wood’s guaranty. They made advances in accordance with the agreement, and hold the note ■accordingly.
Whether the court below found the fraud to be that the note was for a simulated indebtedness, or that Wood was interested in the business of Riggan, there is no proof that Senter & Co. knew or ought to have known either fact up to the time that the mortgage was executed. It is contended that, if they were ignorant of the facts constituting the fraud, their agent Meadows knew the facts. The evidence does not sustain this contention. He knew that Riggan owed a large sum of money, more than he would probably be able to pay; but knowledge of a large indebtedness is not knowledge that it is fraudulent, and a creditor may in good faith accept paper .as collateral, which he believes the maker will be unable to pay in full. As Senter & Co. acquired the note in good faith before maturity, as security for an existing debt and for advances thereafter made, and now so hold it, it follows that it is a valid demand in their favor which they may •collect or secure as though it were untainted by fraud in its execution.
It is also contended that, inasmuch as the mortgage was executed to secure a pre-existing indebtedness, it would not operate as a purchase to defeat existing equities, but could be avoided for fraud of the mortgagor in which the mortgagee did not participate. The appellees had no existing equities; the principle is therefore inapplicable. They acquired their interest in the property after the execution of the mortgage, and that they cannot defeat the claim of the mortgagee for fraud in which he did not participate, is settled law in this State. Hill v. Shrygley, 51 Ark., 56,
As there is no evidence to prove that Senter & Co. were guilty of, or participated in, any fraud upon the creditors of Riggan, or that they knew, or had notice of, the fraudulent character of the dealings between Riggan and Wood, the judgment against them upon their interplea will be reversed, and the cause remanded for a new trial thereon.