22 F. 631 | U.S. Circuit Court for the District of Northern Iowa | 1884
In this cause complainant files its bill for the foreclosure of a mortgage executed by John Wright and wife under date of November 2, 1883, upon the south half of block No. 7, in the town of Odebolt, Sac county, Iowa, and given to secure payment of the sum of $2,800, payable on the fifteenth day of January, 1884, as-evidenced by-a promissory note for that sum, payable to the order of Nelson Wright. Complainant avers that the note and mortgage were indorsed and transferred to it for a valuable consideration by Nelson Wright, and that the sum secured thereby has not been paid. To this bill John Wright and wife, Philip Schaller, and others are made parties defendant. Schaller files an answer in which he avers that on the fifth day of November, 1883, John Wright executed a general deed of assignment of all his property, for the benefit of creditors, to Nelson Wright, who refused to accept the trust created by the deed, and thereupon said Schaller was appointed assignee by the district court of Sac county under the provisions of the statute of Iowa; that when said John Wright executed the mortgage to Nelson Wright he was then contemplating making an assignment; and that the note and mortgage given to Nelson Wright were without consideration, and were given to cover up his property, and to defraud his creditors, and for that sole purpose; and that in furtherance of such fraudulent purpose they were after-wards transferred to complainant, and prays that the same be declared to be fraudulent and void. To this answer complainant excepts, on the ground that Schaller cannot, as assignee, for the benefit of creditors, question the conveyance made by his assignor; that as assignee he stands in the shoes of the assignor, and cannot be heard to say that the mortgage is fraudulent.
At common law the right of a creditor to attack and set aside a conveyance made by his debtor on the ground of fraud, does not pass to an assignee or trustee appointed by the debtor. In some states this right is by statute conferred upon the assignees. Whether the Iowa statute, regulating assignments for the benefit of creditors, conferred this right upon the assignee was considered and decided in the case of Rumsey v. Toion, 20 Fed. Rep. 558, and I see no reason to change the views therein expressed. The case at bar, however, does not present the simple question of the right of an assignee to recover property fraudulently conveyed away by his assignor. In this case the title to the realty covered by the mortgage passed by the deed of assignment to the assignee. Complainant now seeks to procure a decree for the sale of the realty, arid to that end makes the assignee
The usual rule, as between parties to a fraud, is that courts will not aid either party. Under this rule, should not a court of equity, in a case brought by the fraudulent mortgagee directly against the mortgagor, to foreclose a mortgage given without consideration, as a mere cloak to protect the property against creditors, refuse its aid, as a decree of foreclosure and sale under it would only consummate the fraud, and enable tlie guilty parties to effectually defeat the rights of creditors? Tho general rule is, that he who has voluntarily aided in the perpetration of a fraud by another shall not be permitted to obtain a profit thereby against those who have been thus defrauded.
In the case at bar, as already stated, the title to the realty included in the mortgage, passed by virtue of the deed of assignment to the assignee, who holds the same in trust for tho benefit of creditors. It is the duty of the assignee, in the performance of his trust, to defend this property against all unjust, adverse claims. He takes the property not as a purchaser, but subject to all rights and equities subsisting against it in favor of third parties, and in that sqnse he is said to succeed only to the rights of his assignor. If the mortgage in question was in fact given to secure an actual indebtedness, so that, as betweon the mortgagee and mortgagor, it is valid and binding, then the assignee could not defend against it, on the ground that it was for any reason invalid against creditors. The right of creditors to attack a mortgage as fraudulent, growing out of equities existing in their behalf, does not pass to the assignee, in the absence of statutory provisions to that effect, and none such are found in the statutes of Iowa. In the present, case, the right of the assignee to defend against a foreclosure of the mortgage is not based upon a transfer of the rights a.nd equities of the creditors, but upon the fact that the title of the property has been vested in him in trust for the creditors, and that, having accepted tho trust, he is charged with the duty' of protecting the property against ail fraudulent claims.
As is said by the supreme court in Clements v. Moore, 6 Wall. 299.
“The cardinal principal in all such cases is that the property of the debtor shall not be diverted from the payment of his debts, to the injury of his creditors, by means of fraud.”
Should it be held, in tho present case, that the assignee cannot defeat the enforcement of the mortgage against the realty, the title of
' The demurrer to the cross-bill is therefore overruled.