26 Colo. App. 64 | Colo. Ct. App. | 1914
Lead Opinion
rendered the opinion of the Court.
The original complaint in this action was filed August 8, 1902, by plaintiff in error (plaintiff below), and the action was. brought' to enforce the Collection of a judgment for $6,378, rendered January 5, 1901, in favor of plaintiff Tibbetts, against David P. Terrill. The judgment was recovered in Arapahoe County, in the Second Judicial District, and transcript thereof filed for record with the clerk and recorder of Rio Blanco County, on the 18th day of January, 1901. Plaintiff caused execution thereon to be issued and sent to the sheriff of Rio Blanco County, who levied upon the property in issue on April 29, 1901. After the levy, Louise C. Terrill brought an action against Tibbetts et al., in the District Court of Rio Blanco County '(June 18, 1901), and succeeded in securing a restraining order, out of that coürt against the sheriff of Rio Blanco County, therein recalling the said execution, vacating the levy, and prohibiting the sheriff from further proceeding to advertise and sell the property under the execution. Apparently that suit was never prosecuted to a final hearing. On September 9, 1901, and while the in june-, tión suit was pending, plaintiff Tibbetts caused a lis pendens to be filed with the clerk and recorder of said Rio Blanco' County, it being therein stated that on November 22, 1900, defendant David P. Terrill, then being the record owner of the premises, conveyed the same to John L. Gray, his attorney ; that on December 30, 1900, said Gray deeded the premises to defendant Louise C. Terrill, wife of said David! P. Terrill; that on October 3, 1901, the said Louise C. Terrill, with full knowledge and notice-of the filing of said transcript of judgment, and lis pendens, as aforesaid, deeded said property to defendant J. A. Alley; that said lis pendens gave notice that plaintiff would urge and contend that the transfers and conveyances made by said David P. Terrill, John L. Gray and Louise C. Terrill, as aforesaid, were without considera
This is the second time this case appears in our appellate courts. At the first trial judgment was rendered for defendants Alley et al., from which- plaintiff prosecuted! an appeal to. the Supreme Court, which court, in April, 1908, reversed the judgment and remanded the case. Tibbetts v. Terrill, 44 Colo. 94, 96 Pac. 978, 104 Pac. 605. It was tried again in the District Court without a jury, and judgment was again rendered for defendant Alley, from which this.appeal is taken. In the second trial all the evidence which had been introduced at the first trial was admitted, followed by other evidence upon an issue which had been formed by an amendment to defendants’ original answer, the issues thus tendered pertaining to- improvements made on the property after Alley’s purchase, and to a mortgage existing thereon at the time Tibbetts fastened his judgment lien on the property. The amendment was apparently filed because of the language used by the Supreme Court in the latter part of its opinion in the Case cited.
The statement of the facts of this case by Justice Bailey in Tibbetts v. Terrill, supra, renders it unnecessary for us to restate them in full. In that case the Supreme Court substantially held that, although defendant Alley paid to Mrs. Terrill full value for the property, he was not a purchaser in good faith without notice; that the deeds between the Terrills and Gray were fraudulent and void as against the judgment creditor Tibbetts; that Alley made the purchase with knowledge and information, by himself and his attorney, of the recorded lis pendens and levy, and other facts and circumstances sufficient to put him on inquiry as to the fraudulent character of the deeds between defendants David and Louise
“There is nothing in the pleadings concerning these incumbrances, neither is there anything in the original briefs filed in this court relating- to them. It appears by the abstract that the consideration' paid -by the appellee was in part the payment of certain incumbrances, but no issue was made of that matter in the trial court, and we cannot, upon motion, after the rendition of an opinion, determine the merits of a controversy which was not involved in, nor passed upon by, the trial court.”
The amendment to the answer above alluded to set up, substantially, that the mortgages were in favor of one C. J. Dickinson, mortgagee, and that the $4,000 represented thereby was a part of the original purchase price in the sale from Dickinson to David P. Terrill; that Alley had purchased the premises in good faith, and paid off. the $4,000 represented by said mortgages, with interest, and had caused both to be released of record. The amended answer further alleged that
There are but two' propositions for consideration by the court on this appeal, viz : (1) Whether or not defendant in error Alley is entitled to an allowance for the improvements placed on the property after his- purchase from Mrs. Terrill, and' entitled to claim the same as a superior lien to that of Tibbetts’ judgment; (2) whether or not Alley should be subrogated to the rights of the mortgagee Dickinson, by reason of having assumed the mortgage of $3,000 at the time of his purchase, and which mortgage he subsequently paid, and whether or not he is entitled to like subrogation after paying off the $1,000 mortgage.
We may say at this time that the questions (1)' as to whether or not defendant in error Alley was an innocent pur^ chaser for value without notice, from Mrs. Terrill, (2) as to whether or not he had sufficient knowledge of the facts and circumstances surrounding the giving and receiving of the fraudulent conveyances aforesaid to put him upon inquiry and-cause him to investigate further the validity thereof, as against Tibbetts’ judgment lien, (3) as- to whether or not said conveyances were without consideration, fraudulent, and given to hinder and «delay the creditor Tibbetts from collecting his said judgment, and (-4) as fo whether or not Alley is deemed in law to have possessed constructive knowledge of the fraudulent character of said conveyances and want of title in his grantor, Mrs. Terrill, to convey the premises to him free from Tibbetts’ lien — have all been decided and disposed of by the Supreme Court in the case cited, against the claims and contentions of. Alley. The rulings of the Supreme Court upon these questions are binding upon us under the doctrine of the "Law of the Case,” which is invoked by plaintiff in error.
It may be well, to notice here that although the answer as amended alleges that the property was incumbered to Dickinson for $4,000 at the time Alley purchased from Mrs. Ter
Now, as to the question of improvements made by Alley and. his right to a lien therefor, it is well to call attention tO' the circumstances under which such improvements were made. As said by the Supreme Court, Alley bought the preim ises with knowledge and information of the fraud perpetrated upon Tibbetts by Mrs. Terrill and her grantors, or at least with knowledge of facts and circumstances which in law imposed upon him the duty, before buying the premises, of investigating further the title of Mrs. Terrill. We think, as regards these improvements, that Alley, having constructive knowledge, as he did, of the fraudulent character of the conveyances from David Terrill and Gray, down to his immediate grantor Mrs. Terrill, expended his money in improving the property, well knbwing that Tibbetts was vigorously following up his claim and contention that Mrs. Terrill’s title
“The quoted passage of Sugd. 525, furnishes a sound practical rule for rejecting claims for improvements, where the transaction is tainted with fraüd. It is expressed nearly in these words: If a man has acted fraudulently, and is conscious of a defect in his title, and with that conviction on his mind, expends a sum of money in improvements, he is not entitled to avail himself of it.”
We are of the opinion that the District Court erred in allowing- for- the improvements made by Alley and decreeing the same to- be a prior lien to that of Tibbetts’ judgment.
Wé come now to- the question of subrogation as applied to the mortgages paid by Alley after his purchase. We will first consider the mortgage of $1,000 given by Mrs. Terrill to Dickinson after Tibbetts’ transcript of judgmeht had been recorded. The determination of this question should require but little space, as Alley’s position concerning- this payment
There is but one question remaining for determination, viz: the right of Alley to' be subrogated to Dickinson, mortgagee, through payment and release of the $3,000 mortgage. The record shows that at the time Alley purchased the premises from Mrs. Terrill he assumed and agreed to pay that mortgage. It may be well to’ briefly recite Alley’s position in Connection with the payment of this mortgage. The pleadings nowhere charge Alley with fraud or with knowledge of the fraud practiced upon Tibbetts, through the execution of the fraudulent deeds" referred to, and do not charge him with participation therein. The complaint goes no further than to charge him with notice of the recorded lis pendens and its contents.
From the evidence and findings of the court it appears that Alley was a resident of the state of Missouri, had only been in Colorado’, or in the vicinity of the premises, about a week before he made the purchase, and had never known David or Louise Terrill, or Gray, prior to that time; that he personally knew nothing about the fraud practiced against Tibbetts by the Terrills and Gray, in the execution and delivery of the said conveyances; that he never had any conversation with any of said parties, or with any one else, concerning the purpose or intent of any of them in the execution and delivery of the deeds; apd that at the time the deeds were made he was not within the boundaries of the state, and those
“The rule is familiar that general language in an opinion is to be taken in connection with the facts of the particular case. * * * To make the matter entirely clear we Call attention to- the difference in the character of the action and the issues therein.” Halbouer v. Cuenin, 45 Colo. 507, 101 Pac. 763.
There is reputable authority holding that a purchaser from a fraudulent grantee cannot be deprived of his title unless it is shown that he had actual knowledge of the fraudulent intent and design of those actually participating in the fraudulent transaction, and that Constructive knowledge, such as given by the record, etc., is not sufficient. Whatever may be the rule in other jurisdictions, we recognize only the rule adopted by our Supreme Court.
The question of Alley’s title then having been disposed of adversely to him, has he, under the facts and circumstances here disclosed, any standing in a court of equity for relief against the judgment lien, by reason of having paid off the $3,000 mortgage? We recognize that there is a decided conflict of authority upon this question. It must be conceded
It is well worthy of notice that the lis pendens was filed by Tibbetts after the suit was instituted by Mrs. Terrill against the sheriff of Rio Blanco county to restrain him from advertising or selling the property. The record shows the sheriff was enjoined from selling, and' that he released the levy previously made under the execution, all of which Alley hadl full knowledge of before he paid off the $3,000 mortgage; so that in addition to the advice of his attorneys to the effect that Tibbetts’ claim was of noi forc’e or validity as against Mrs. Terrill’s title, which he had bought, he had the further assurance of a decree of a competent court of record, corroborating his attorneys’ judgment in that regard.
So far as Alley is concerned, there appears to be no badge of fraud disclosed by the record. The Terrills and he were practically strangers to each other at the time of purchase. The record taken as a whole rather tends to show that Alley was free at all times from actual fraudulent design and free from any actual knowledge or information of evil or fraudulent intent on the part of any one connected with the transaction. The only serious charge that can be made against him is that he was lacking in common business acumen and foresight in his dealings with this property. He therefore should stand in a court of equity in a favorable light and receive its protection, provided it can relieve him without doing injustice
“As a general rule where the purchaser’s title to the land fails he will be subrogated to> the rights of the holders of liens or inc'umbrances which he has paid, or which have been paid out of the purchase money.” Am. & Eng. Enc. of Law, vol. 27, p. 239.
The cáse of Lynch v. Burt et al., 132 Fed. 417, 67 C. C. A. 305, is one in which the facts were quite similar to those found in the case at bar. The court said:
“The facts as clearly give Phipps an equitable claim or right to' reimbursement as they exclude Burt therefrom. She (Burt) was an active and conscious participant in the fraud, while he (Phipps) was an entire stranger to it for more than three years after it was committed, and was at no' time a conscious participant therein. He was constructively Chargeable with knowledge of it, because he entered into the written agreement with Burt, and' acquired! her title pending the present suit, 'and subsequent to the Gotzian decree. Pie also advanced the money to pay Burt’s counsel and other expenses in this suit, and was therefore constructively chargeable with her vexatious and wrongful effort to sustain the fraudulent transfer and to defeat the Complainant’s claim. The evidence, however, clearly establishes that in all this Phipps was acting in perfect good faith, without intent to defraud any one, in á mistaken belief in the honesty of Burt’s claim and: conduct, and under the approving advice of reputable counsel. * * * In pursuance of the agreement with Burt mto which he had entered in good faith, acting upon an honest belief that he had thereby acquired a right and incurred an obligation so to do, Phipps discharged and removed this paramount lien by paying $17,168.33 in redemption from the sale thereunder. Under the rules stated, he was entitled as against complainant to reimbursement for that expenditure, andi to' have its repayment made a condition ten the relief granted to complainant,*77 and declared a lien üpon the lands as the Gotzian claim had been. He was also entitled to interest .upon this sum from the date of the redemption,” etc.
In the instant case Alley stood in the same relative position as did Phipps in the one cited. Phipps was not a participant in any way in.the frauds perpetrated by Burt and others in having the title to the premises fraudulently deeded to Burt, for the purpose of cheating and defrauding the Creditors of the judgment debtor Bartholomew Pickert, and he knew nothing about those deeds until three years after they were made and given. In the instant case Alley knew nothing about the fraudulent deeds between Gray, David Terrill and Mrs. Terrill, given for the purpose of cheating and defrauding the creditors of David Terrill, until about ten months after they were given. Phipps, at the time he made his contract with Burt, agreed with her to discharge the Davis mortgage then on record. At the time Alley took the deed in- the instant case he agreed to pay the $3,000 mortgage.
In Tompkins v. Sprout, 55 Cal. 31, we have another case wherein the facts were noticeably similar to those of the case at bar. April 2, 1877, decision was rendered in favor of plaintiff Tompkins against defendant Charles Peterson, followed by final judgment on April 7th following. April 2nd, after decision, defendant conveyed the. land to his. brother Gustav Peterson. Gustav received the deed with full knowledge of Charles’ intent to- defraud the judgment creditor Tompkins and colluded with Charles in the fraud. April 24, 1879, execution on.the judgment was issued, and the.property sold thereunder, followed- by sheriff’s deed to- plaintiff. Between the issuing of the certificate of sale and execution of sheriff’s deed, and about -September 28th, defendant Sprout purchased the land from Gustav Peterson, and paid full value therefor, but he .had .no actual knowledge of the fraud against Tompkins in the deed from Charles to Gustav, though he had both actual and.constructive knowledge that the land' had been sold a,t sheriff’s sale as Charles’
“There being, at the time the plaintiff recovered his judgment against Charles Peterson, and at the time of the conveyance from Charles to Gustav Peterson, and at the time of the purchase by plaintiff under his execution sale, a valid, subsisting mortgage lien upon the property, it isi obvious that the latter cannot be injured by requiring of him payment of the amount of the lien as a condition precedent to' vacating the sale to the defendant. The court below expressly found that defendant had no actual knowledge of the fact that the Conveyance from Charles to- Gustav Peterson was fraudulent, and that the conveyance from the latter to defendant was constructively fraudulent only. In such case, a court of equity will protect the purchaser as well as the creditor, where, as here, both can be protected without injury to either. * * * Clements v. Moore, 6 Wall. 312 [18 L. Ed. 786] ; Coiron v. Millandon, 19 How. 115 [15 L. Ed. 575.]
“Applying the principles thus announced to the facts of the case under consideration, it is clear that the court below should have imposed upon the plaintiff, as a condition to vacating the sale to- defendant, and requiring a conveyance of the property from him to the plaintiff, the payment by the latter to the defendant of the amount paid by the defendant in the satisfaction and discharge of the mortgage lien existing upon the property during the time already stated. In this*79 way, and in this way only, justice can be done between the párties.”
From 20 Cyc. 647, we quote the following:
“But where the purchaser’s conveyance is merely constructively fraudulent, a court of equity in setting- aside the conveyance will protect him, as well as the creditor, where both can be protected! without injury to either, as by requiring that the purchaser be reimbursed for a prior incumbrance against the property which 'he has paid, or for taxes paid.”
“When the fact of fraud is established in a suit at law, the buyer loses the property without reference to the amount or application of what he has paid, and can have no relief either at law or in equity. But when' the proceeding is in chancery, the jurisdiction exercised is more flexible and tolerant. If it appears that the grantee has been guilty of no actual fraud, but the circumstances render it inequitable, equity, while it will set aside the Conveyance, will protect the grantee to the extent of his payment.” 14 Am. & Eng. Enc. of Lavo, 345.
See also 37 Cyc. 444.
None of the Colorado cases cited by counsel for either side involve the question we are now considering-.
Plaintiff in error contends that the law is settled by the overwhelming weight of authority that if a. purchaser expressly assumes the payment of valid mortgages of record at the time of purchase he thereby becomes the principal debtor, primarily and absolutely liable for the debt, and may not be subrogated to the benefit of the incumbrance upon making-payment according to his contract. There is authority supporting the rule, but a number of decisions seem to have qualified it and held the same not to be inflexible, viz.:
Matzen v. Shaeffer, 65 Cal. 81, 3 Pad. 92; Bressler et al. v. Martin et al., 133 Ill. 278, 2 N. E. 518; Young v. Morgan, 89 Ill. 199; Cameron) v. Holenshade et al., 13 Ohio Dec. 430, 1 Cin. R. 83; Bryson v. Myers, 1 Watts & S. (Pa.) 420; Peet v. Beers, 4 Inch 46.
“We think that the authorities largely preponderate in favor of the proposition that although the deed recites that the purchaser shall pay off the mortgage as a part of the purchase price he is entitled to the subrogation;” citing cases from Illinois, New York, Minnesota, Indiana and California. In the instant case the deed to Alley recited that he assumed and agreedl to pay this $3,000 mortgage. Strongly supporting this view are the following Cases: Young v. Morgan, supra; Bressler et al. v. Martin et al., supra; Matzen v. Shaeffer, supra. In the last case cited the Supreme Court of California held that the vendee paying off the existing mortgage as part of the purchase price entitled him to the benefits of the mortgagee as against the judgment creditor of his vendor, although the mortgage had been released of record, the court saying:
“This presents a case in which the interests of the appellant required that the lien of the mortgage which she paid off should be kept alive. Her interests can only be fully protected by regarding the transaction in which she p-aidi off the mortgage as an assignment of it to- her, and the lien as being kept alive for her security and benefit. * * * We think this is one of'the cases in which the satisfaction of a mortgage of record does not. o-f itself prevent a court of equity from holding that the payment of it operated as an assignment of it to the' person making the payment.
“There is nothing to indicate that appellant when she paid off the mortgage intended to purchase it, or to- have it kept alive for her benefit. It .does not appear that anything was said on that subject. She paid it off, andl the mortgagee without her request satisfied it of record. But the payment was made for her benefit, or for that of respondent. If the*81 payment under the circumstances operated as an equitable assignment of the mortgage to her, she gets the benefit of it. Otherwise the respondent. Now it is quite clear that she intended the payment. of the mortgage should inure to her own, and not to his benefit. She had in view her own, and not his interest. And it is only by. regarding the transaction as an .assignment of the mortgage to her that her interests can be protected and maintained, and a court of equity will presume that it'was intended-she should reap the benefit of her investment. Equity regards that as done which ought to- be done, and looks to the intent rather than to the form. There is no equitable ground on which the respondent could object to- the mortgage lien being kept alive for the protection of appellant’s interest, and the mortgage having been satisfied: of record when it should have been assigned to appellant, it was not error to vacate the satisfaction.”
If Alley acted in good faith in paying the mortgage, and with a desire to save his property from probable foreclosure, and under an honest belief that he had a good title thereto, then he should be protected by the court, if in so doing no injustice be done to Tibbetts. The payment of the mortgage was an entirely separate and distinct act from the taking of the deed from Mrs. Terrill. True, his deed gave him no title to the property as against, the judgment lien, but it does not necessarily follow' that because he failed to sustain the title which he thought he had, he thereby lost all right of subrogation which he might have otherwise possessed by reason of having paid off the mortgage. The integrity of the mortgage is in no way questioned. It was a valid lien of record when the transcript of jud'gment was recorded. Alley is not charged with any kind of fraud in its'payment.' Such being the case, wherein is Tibbetts prejudiced, or wherein does he lose any rights by requiring him to first pay this prior lien of $3,000 from the proceeds of the sale ?
In the two cases last cited the Supreme Court without cavil or hesitation invoked equitable principles to administer
Most of the cases cited by plaintiff in error involve transactions between fraüdulent grantors and their immediate fraudulent grantees, wherein all are actual parties to the fraud; hence those cases do' not apply to a state of facts such as we are now considering. The general rule seems to be that a fraudulent grantee who has actually and knowingly participated in the fraud has no standing" in a court of equity
The judgment will be reversed and the case remanded to the District Court for further proceedings as the parties may be advised, and in case the property be sold under the Tibbetts judgment, there shall be first paid to defendant in error Alley, out of the proceeds thereof, the sum- of $2,000, being the amount of the homestead exemption, plus the $3,000 which was paid to- release the mortgage; the balance, if any, to be applied on the plaintiff’s judgment; plaintiff in error to recover his costs.
Reversed and Remanded.
Dissenting Opinion
dissenting:
Finding myself unáble to concur either in the reasoning of or the result reached by my associates, and being impressed with the importance of the rule announced in the majority opinion, and the precedent which .it establishes, I have reluctantly concluded that it is my duty to set forth, at some length, my reasons for dissenting.
I shall not encumber this opinion with lengthy quotations from the opinion of the Supreme Court rendered in this,case when it was before that body, as the same has been referred to in the majority opinion, and will be found in 44 Colorado 94, 96 Pac. 978, 104 Pac. 605. Summarized, the opinion of the Supreme Court squarely holds: 1. That Mrs. Terrill
“Courts of equity d:o not permit a party to' claim any benefits from his own ignorance of facts which he could have learned by exercise of ordinary prudence and diligence.”
The Supreme Court’s Conclusions, if any authority were required to make the same binding upon us, finds ample support in the authorities, case and text.
“Knowledge or implied notice- is equivalent to, and constitutes, participation, where the tiansfer is to one not a .creditor.” 20 Cyc. 471.
“Participation, as the term is used, need! not be by some affirmative action on the part of the transferee in consummating the fraudulent intent of the transferer, but the transferee is a participator in the fraud if he takes the conveyance with actual notice of the grantor’s fraudulent intent, or under circumstances zdhere the law zvill impute to him knowledge of the purpose of the transferer, without his actively taking part in the fraudulent design of the transfer other tizan the taking of it." 20 Cyc. 471 (note). Kansas Moline Plow Co. v. Sherman, 3 Okla. 204, 41 Pac. 626, 32 L. R. A. 33.
Furthermore, the right to subrogation is never granted as a reward fo-r negligence. Fort Dodge Bdlg. Assn. v. Scott, 86 Ia. 431, 53 N. W. 283.
The majority opinion, in so far as it treats of the money paid by Alley to redeem from the mortgage, appears to pro
My brethren may not approve of the opinion handed down by the Supreme Court in this case, but they ought to be bound by it, and they ought to cheerfully accept it as the law of this case; they have no more right to silently reverse an opinion of the Supreme Court, or ignore it altogether-, than they have to, in terms, announce their dissent, and! thus refuse to follow it. My conclusion therefore is that, if for no- other reason than that the Supreme Court has laid down rules and made findings, both of fact and of law, which are binding upon us, the majority opinion in this case is wrong. But I find myself in hearty acco-rd with the conclusions of the Supreme Court.
My position is that under the decision of the Supreme Court in this case, Alley was guilty of actual fraud, or guilty of such wilful carelessness as that the law imputes to him actual knowledge, and even the majority opinion' nowhere combats the universal rule that one guilty of actual fraud may not invoke ’the doctrine of subrogation. On this point, at least, the authorities are harmonious.
The relief extended to Alley by the majority opinion presupposes a finding that he did not have actual knowledge; that he acted in good faith. These findings are squarely in the teeth of the opinion of the Supreme Court, as I read it.
I am persuaded that my associates have reversed the rules that apply, or ought to- apply, in cases of this sort, viz: that:
“The burden is always on one who- claims this equity of subrogation to show that he is entitled: to it.” — Sheldon on Subrogation (2nd Ed.) sec. 11.
“And also- that the relief can be granted to him without prejudice to the rights of innocent parties.” — Harris on Subrogation, p. 561.
“To entitle a party to subrogation, his equity must be strong, and his c'ase clear. In such applications great care should be taken by the court that the subrogation will work no injustice to the rights of others.” — Knoufs Appeal, 91 Penn. St. 78; Lloyd v. Galbraith, 32 Penn. St. 103; Keeley v. Cassiday, 93 Penn. St. 318;
That:
“The rights of one seeking subrogation must have greater equity than those who' oppose him; the burden being upon the would-be subrogee to establish his right, for subrogation will be ordered only in a clear case of pure equity. The right is never allowed one who would thereby reap .advantage in any way from his own wrong-doing. * * * As its purpose is only to prevent fraud or subserve justice, it will not be applied where its exercise would promote injustice, and thus can be applied only with a due regard to the legal and equitable rights of others.” — 37 Cyc. 371; McNeil v. Miller, 29 W. Va. 483, 2 S. E. 335:
That:
“The party seeking such relief must show a superior equity, for the equities being equal, the law will be allowed to take its course.” — Pritchett v. Jones, 87 Ala. 317, 6 So. 75.
The majority opinion appears to proceed upon the theory that the burden was on Tibbetts to satisfy the chancellor that Alley had been guilty of fraud, and that his fraud would work to the injury of Tibbetts. But even under this perversion of the rules, as indicated by the above quotations, the majority opinion is wrong, for, as I shall presently show, the record demonstrates that Tibbetts will suffer injury.
In the majority opinion attention is called to the difficulty which would have confronted Alley, had he attempted by inquiry to ascertain whether or not Tibbetts’ contentions were well-founded. There are two all-sufficient answers to this: 1, he could have refrained! from purchasing the land until that
“Had pursued these investigations with reasonable skill and diligence, he would have ascertained that the consideration which Gray gave for the property, was his unsecured promissory note, and the Consideration which Gray received for the property when he conveyed it tp Mrs. Terrill was the same note, which was still in the hands of Mr. Terrill. He would also have discovered the existence of the judgment in favor of appellant. He would thus have learned that the conveyances leading from Terrill to- Mrs. Terrill were without consideration and void as to creditors, or that the consideration for the conveyance from Gray to Mrs. Terrill was paid by Terrill, which resulted in Mrs. Terrill’s holding the property subject to the rights of her husband’s creditors; that in either event the transaction was fraudulent so far as it affected the creditors. Aside from the knowledge possessed' by the attorney, there were sufficient facts known to Alley before the purchase was consummated and the purchase price paid, to‘ put him upon inquiry, and to charge him with knowledge of facts zvhich he might have acquired if he had exerted himself to the degree of ordinary diligence and prudence in making inquiry
Moreover, my brethren appear to be oblivious to the difficulties that would confiont Tibbetts, were he to attempt to establish actual fraud on the part of Alley. Paraphrasing from the original opinion: “He (Tibbetts) might have examined the records thoroughly, and made every effort to obtain information concerning the motives of Alley and the Terrills in giving the deed, and still, the limit of information so acquired would have been that Alley claimed and contended that the deed from Mrs. Terrill to him was given for a good consideration. It is more than probable that the question of
There are only two authorities that are cited in the majority opinion which, to' my mind, sufficiently resemble the in
“The defendant paid full value for the land and ‘did not have actual knowledge of the fact that' the conveyance from Charles to Gustav was fraudulent.’ ’’
Here, if Alley did not have actual knowledge, he had what the Supreme Court has ruled was the equivalent thereto, and therefore, the Supreme Court says the law imputes to him actual knowledge. Proceeding upon and supplementing this finding by the trial court, the California Supreme Court, on p. 36, says:
“The Court below expressly found that the defendant had no actual knowledge that the transfer from Charles to Gustav Peterson was fraudulent, and that the conveyance from the latter to the defendant was constructively fraudulent only. In such case, a Court of equity will protect the purchaser as well as the creditor, where, as here, both can be protected zvithout injury to either.”
In other words, I take it that the California Supreme Court found that there was ample equity in the property to cover the claims of both parties. At least there is in the opinion nothing toi negative this presumption. Another case much relied upon in the majority opinion (Lynch v. Burt, 132 Fed. 417, 67 C. C. A. 305), may be distinguished in the same manner as the California opinion.
The land in this case, with all the personal property thereon situate belonging to Mrs. Terrill (including household furniture, live stock, hay, etc.) was sold to Alley for $7,000. With the $2,000 deducted on account of the homestead right mentioned in the majority opinion, and $3,000 on account of the mortgage debt, it is not probable there will he anything remaining as the result of an execution sale to apply on the
The majority opinion is inconsistent in denying to Alley the value of his improvements, while allowing him for the money he advanc'ed in redeeming the land from the mortgage. The authorities make no distinction between improvements, and money applied to the liquidation of liens whic'h were upon the land at the time of the purchase, and especially in this case ought there to- be no distinction made, since it was stipulated that the amount claimed by Alley by way of improvements was $1,700; that they were permanent and necessary and enhanced the value of the property. In the majority opinion it is said that Alley, “expended his money in improving the property, well knowing that Tibbetts was vigirously following up his claim and contention that Mrs. Terrill’s title was fraudulently obtained, and was invalid against a judgment lien. * * * Under such circumstances, common prudence would have kept him from expending any money on the premises other than was absolutely necessary to prevent the loss of the same, until after the claims of Tibbetts had been finally .determined. * * * He made such improvements at his own peril, SO' far as Tibbetts is concerned, and ought to suffer the consequences.”
With this finding I fully agree; but did he not know, when he paid out his money by way of redeeming the land from the mortgage, that “Tibbetts was vigorously following up his claim and contention that Mrs. Terrill’s title was fraudulently obtained?” There is nothing in the record to show when he made the improvements with reference to when he paid out the money by way of redeeming from the mortgage, but the record does disclose that he paid out a substantial part of the money after this suit was started, and a year before the note zi/as due, that is to say, a year before the mortgage could have been foreclosed or his title jeopardized.
“The quoted passage Sugd. 525, furnishes a sound, practical rule for rejecting claims, for improvements, where the transaction is tainted with fraud. It is expressed nearly m these words: If a man has acted fraudulently, and is conscious of a defect in his title, and with that conviction on his mind expends a sum of money in improvements, he is not entitled to avail himself of it.”
Having quoted, without qualification, the above language from the Maryland case, I suppose my associates concede its applicability to the defendant in error, Alley. Then, we have this remarkable conclusion: that where a transaction is tainted with fraud, and where a man has acted fraudulently, and is conscious of a defect in his title, and with thar conviction on his mind, expends a sum of money in paying off a mortgage, he is entitled to avail himself of the benevolent doctrine of subrogation, but where he makes valuable improvements, which are necessary to the estate, and which actually enhance the value of the estate, he is not!
The highest court of this Country has clearly indicated that as between improvements placed upon land; purchased under the circumstances presented by this case, and money paid out to- lift an encumbrance therefrom, the law makes no distinction; and that court has expressly ruled that a man who has acted fraudulently, “and with that Conviction on his mind,” can recover for neither of these items. In Railroad Co. v. Soutter, 13 Wall, 517, 20 L. Ed. 343, Mr. Justice Bradley, speaking- for the court, uses this language:
“Was it ever known that a fraudulent purchaser of property, when deprived of his possession, could recover for his repairs or improvements, or for encumbrances lifted by him whilst in possession? If such a case Can be found in the books, we have not been referred to- it. Whatever a man*92 does to benefit an estate under such circumstances, he does in his own wrong. He can not get relief by coming into a court of equity.” — 20- Cyc. 470; Gilbert v. Hoffman, 2 Watts (Pa.) 66, 26 Am. Dec. 103; Guckenheimer v. Angevine, 81 N. Y. 394; Bump on Fraudulent Conveyances, § 198; Weiser v. Kling, 38 App. Div. 266, 57 N. Y. Supp. 48; Roller Mills v. Ward, 6 N. D. 317, 70 N. W. 271; Seivers v. Dickover, 101 Ind. 495; Goble v. O'Conner, 43 Neb. 59, 61 N. W. 131; Beidler v. Crane, 135 Ill. 99, 25 N. E. 655, 25 Am. St. Rep. 349; Sands v. Codwise, 4 Johns. (N. Y.) 536, 4 Am. Dec. 305.
There is yet another reason which, in my judgment, ought to bar Alley from the right to invoke the doctrine of subrogation, at least as to $1,000 of the sum which the majority of the opinion allows him; the $3,000 which the majority opinion concludes he ought to recover, was represented ‘by three promissory notes. The last note, of $1,000, was paid by him (if paid at all) in two installments, the ñrst being paid some eighteen months before the maturity of the note, and the last installment a yeair before maturity, and five months after this action was brought. I have discovered no authority which permits one, under circuinstances of this kind, to invoke the doctrine of subrogation.
There is still another reason which is, in and of itself, sufficient to defeat the claims of Alley to subrogation, and that is, that at the time he filed his original answer in this case, to-wit, March 21, 1903, he had paid, -as the record shows, every dollar that he now claims by way of 'subrogation, i. e., he had, according to his evidence, extinguished the mortgage by paying all of the notes which it was given to- secure, save and except a small balance of less than $350 on the last of the three notes, and this balance was paid before the issues in the case were joined. In the original answer no -claim whatever is made by Alley that he had paid! off the mortgage and desired that it be kept alive for his use and benefit; nothing whatever is said by him, or on his behalf, concerning the question of subrogation, until the Supreme Court, in April, 1908, (some
Innocence of actual fraud may, under certain circumstances, entitle a purchaser of mortgaged land who pays off a debt thereon to the right of subrogation, but my associates seem to think it must do- so-, regardless of the grossest and most wilful negligence, and in the face of the clearest possible proof, of waiver.
“Subrogation, being an equity springing from the relation between the parties, and created and enforced for the benefit and protection of the one in whose favor it is originated, may be asserted or waived at pleasure, either expressly or by implicaton.” — 37 Cyc. 383.
*94 “The right of subrogation may be lost by the waiver of the party entitled to it. * * * A long delay without action will be fatal to a claim of subrogation — Sheldon on Subrogation, Sec. 41.
Alley’s right of subrogation, if any he had,' accrued when he paid the last installment on the mortgage.
“The surety’s right of subrogation accrues upon his payment; and as to his principal the statute then begins to run against him, and he should then call at once for the securities, if he desires to be subrogated to them.” — Sheldon on Subrogation, Sec. no.
He paid the last installment January 5, 1903. Six years and eight months elapsed before he attempted; to assert his alleged right of subrogation. His supposed right was then barred by the statute of limitations.
“The right of subrogation will be barred by the statutory period of limitations like any other right.’V — Sheldon on Subrogation, Sec. no.
If it be said that Tibbetts, by not pleading the statute of limitations, waived his rights to invoke the same, I reply: Alley had waived his right to invoke the equitable rule of subrogation long before Tibbetts was called upon to plead the statute of limitations. But, the truth is, Alley has never asked; to- be subrogated to the rights of the mortgagee. The prayer of his original answer reads as follows:
“Wherefore, this defendant prays that he go hence without day, with his costs herein expended.”
He does not even pray for general equitable relief. And his amendment, filed September 7, 1909, contains no prayer; it is simply an insert in the original answer. So', the climax of Alley’s good luck in this piece of litigation comes in the form of a relief for which he has not asked! Having chosen his weapons of defense (specific and general denials as to the legality of Tibbetts’ claims) and; having signified his satisfaction with the battlefield, he goes forth to a seven-year war, at the end of which, having lost everything for which he con
From the time the Supreme Court handed down its opinion in April, 1908, until this good hour, Alley has held Tibbetts at bay by advancing an issue or contention which might just as well have been presented and determined on' the first trial, and all this time he has benefited by retaining possession of the land, (for the use of which he is not required to account) thus preventing its sale under execution. In the meantime, Tibbetts’ judgment has more than doubled, and can now never be made by the sale of the land. In Lake County v. Johnson, 31 Colo. 184) 71 Pac. 1106, our Supreme Court expressly ruled that a judgment is conclusive respecting omitted defenses, as well as defenses that were in fact offered, if the omitted defenses might have been plead in the action in which the judgment was obtained.
“A "valid judgment for plaintiff definitely and finally negatives every defense, objection or exception which might and should have been raised against the action; and this is true not only with respect to further or supplementary proceedings in the same cause, but for the purpose of every 1 subsequent suit between the same parties, whether founded upon the saute or a different cause of action.” — 23 Cyc. 1196.
The above quoted text from Cyc. is supported by hundreds of citations, from practically every state in the Union.
“The rule is often stated in general terms that a judgment is conclusive not only upon the question actually contested and determined, but upon all matters which might have*96 been litigated and decided in that suit; and this is undoubtedly true of all matters properly belonging to the subject of the controversy and within the scope of the issues, so that each party must make the most of his case or defense, bringing forward all his facts, grounds, reasons or evidence in support of it, on pain of being barred from showing such omitted matters in a subsequent suit; and it is also true that where the sec'ond suit is upon the same cause of action, all matters which might have been litigated are conclusively settled by the judgment; and, that generally the estoppel applies where matters which should have been urged as a defense in- the first suit are attempted bo be made the basis of a second action, or, according to some of the authorities, where defenses which were available against an adverse claim in the first suit, but not then set up-, are sought to be used in a second action, either by way of defense, of as the foundation of a claim for relief.” — 23 Cyc. 1295.
Lake County v. Johnson, supra, is cited as supporting. and¡ it does support, the last rule announced in the above quotation.
It is true that Tibbetts, in this case, has not interposed estoppel or res ad judicata as a defense, but his failure in this respect does not impress me as more serious than the failure of Alley for more than six years to claim the right of subrogation, and his entire failure, up to the present time, to even ask for that right.
The majority opinion sends this case back, “for further proceedings as the parties may be advised.” I shall be greatly surprised if Alley does not incubate another time-consuming alleged equity, and project this litigation five years or more further into the future, the while he holds possession of the property and; receives the income therefrom.
It is my conclusion that the judgment of the trial court should be reversed, unqualifiedly, and the case remanded with instructions to carry out the directions of the opinion of the