Swann v. Rotan State Bank , 115 Tex. 425 ( 1926 )

The Rotan State Bank brought this suit against Mrs. Bettie Swann and her husband, A.M. Swann, in the District Court of Fisher County in the form of trespass to try title to recover two certain lots in the town of Rotan and the reasonable rental value of the premises, alleged to be $30 per month.

The following facts found by the Honorable District Judge, and approved by the Honorable Court of Civil Appeals, will be sufficient for the purposes of this opinion:

The two lots in controversy were the separate property and the homestead of Mrs. Bettie Swann. Her husband, A.M. Swann, was the active vice president of the Rotan State Bank, and owed it $12,500, part of which was evidenced by a note in the amount of $5,000. A.M. Swann drew his customer's draft on G. Ellis, of Shreveport, Louisiana, for the sum of $5,000, payable to the order of the bank, and placed the same in the assets of the bank to take the place of his said note and accumulated interest, and took his said note out of the possession of the bank without the consent of the other officers of the bank. The draft was returned unpaid. To satisfy the bank in the matter of the draft, Swann delivered to it a deed to the two lots in controversy, signed by himself and his wife, Mrs. Bettie Swann, but it was found as a fact that Mrs. Swann executed the deed to the bank under duress, the details of which need not be stated. (See 254 S.W. 647.) Also, the notary in taking the acknowledgment of Mrs. Swann "did not explain the said deed in any manner to the said Bettie Swann as to its purport, effect, or the consideration of it." The bank had no knowledge of the duress or of the failure of the notary to explain the deed to Mrs. Swann.

The consideration paid for the said deed by the bank was the cancellation of a pre-existing debt owing by A.M. Swann to it, the indebtedness being originally evidenced by the note which A.M. Swann abstracted from the bank, and for which he substituted his draft, which was returned unpaid.

The controlling question is whether or not the consideration paid by the bank for the deed was a valuable consideration in law such as would make the bank a bona fide purchaser for value without notice. If it was not such a purchaser, it could not hold the property so secured from Mrs. Bettie Swann against her, even though it had no notice of the duress or of the failure of the notary to take her acknowledgment according to the requirements of the law.

One who buys at a voluntary sale and pays no money, but credits an indebtedness, is not a bona fide purchaser for value, and such purchaser is not entitled to the protection accorded to a bona fide purchaser for a valuable consideration. The reason for the rule is founded upon the principle that the purchaser who pays the purchase price on a pre-existing debt is not protected against equities of others or against fraud, for the reason that he has not advanced anything on the faith of his purchase and has lost nothing if his title should prove worthless. In crediting his debt he divested himself of no right, and placed himself in no worse position than he would have been if he had not received the conveyance of the property and had not entered the credit.

Chief Justice Willie, in Overstreet v. Manning et al.,67 Tex. 657, 4 S.W. 248, said:

"It is settled in this State that one who buys at a voluntary sale from his debtor and pays no money, but credits the amount of the consideration upon a pre-existing debt, is not a bona fide purchaser for value."

Steffian v. Milmo Natl. Bank, 69 Tex. 513; McKamey v. Thorp,61 Tex. 648; Bonner v. Grigsby, 84 Tex. 330, 31 Am. St., 48,19 S.W. 511.

In McKamey v. Thorp, 61 Tex. 648, after reviewing authorities and discussing the question at some length, the court concludes as follows:

"It seems to be held by the great weight of American authority that a creditor who buys from his debtor, and pays the consideration money by merely crediting the amount upon a pre-existing debt, is not a bona fide purchaser for value."

Again, in Bonner v. Grigsby, 84 Tex. 330, the court, speaking through Judge Gaines, said:

"The lien created by the levy of the execution not having been released at the time Perkins conveyed the lots to the plaintiff, the case presents itself to our minds as one in which the purchaser has neither paid value nor placed himself by the transaction in a worse position than that previously held by him. Having merely credited the price of the lots upon his judgment, he cannot claim to be a bona fide purchaser for a valuable consideration without notice. Steffian v. Bank, 69 Tex. 513. He took by his conveyance the legal title to the lots in controversy, subject to the defendant's equity."

The court, speaking through the same jurist, in the case of Steffian v. Bank, supra, said:

"This court has held that where the consideration of a deed is an antecedent debt only, or where a mortgage is taken merely to secure such indebtedness, this is not sufficient to support the claim of a bona fide purchaser for a valuable consideration. (McKamey v. Thorp, 61 Tex. 648; Spurlock v. Sullivan, 36 Tex. 511. ) There being no new consideration, should the grantee or mortgagee lose the land or his lien upon it, he still has his debt, and for that reason is held to have parted with nothing of value."

These principles make the holding clear that crediting a pre-existing debt is not a valuable consideration for a deed secured under duress or through fraud, nor such as will sustain a deed of a married woman where the requirements of the law as to her privy acknowledgment were fatally violated. Where a party is an innocent purchaser for value without notice, i.e., where he has no notice or knowledge of the fraud or of a defective acknowledgment, and has paid a valuable consideration in law, that is, has been separated from something of value, and his position changed to his material injury or damage, he will be protected in his purchase. If the bank had bought the property for and had actually parted with $5,000, without knowledge of A.M. Swann's duress upon his wife, and without knowledge of the failure of the notary to take Mrs. Swann's acknowledgment as required by law, its title to the property would be protected under the principles of equity. If such were the case, it would be a bona fide purchaser for value without notice.

In its original opinion the Honorable Court of Civil Appeals reversed and rendered this case in favor of Mrs. Swann, basing its judgment upon the fact that the bank had parted with nothing of value; that in the cancellation of its pre-existing debt it was in no worse condition than before, because it still had its debt, and that the consideration was not a valuable one in law so as to overcome the equities and rights of Mrs. Swann, the deed from her having been secured through duress and her acknowledgment not having been taken according to law. On rehearing it affirmed the judgment of the District Court, on the ground that the satisfaction of a pre-existing debt is a good and valuable consideration as between the parties, and that the bank had no knowledge of the fraud or duress exercised by A.M. Swann upon Mrs. Swann, or of the failure of the notary to take her acknowledgment according to law, following the case of Webb v. Burney, 70 Tex. 322, 7 S.W. 841, by the Commission of Appeals.

In his work on Equity, page 647, after defining a bona fide purchaser and saying "the rule is fixed that an antecedent debt will not support a bona fide purchase," Judge Simkins says:

"The case of Webb v. Burney, 70 Tex. 325, 7 S.W. 841, and Harrington v. McFarland, 1 Texas Civ. App. 289[1 Tex. Civ. App. 289],21 S.W. 116, which reluctantly followed it, asserting a different rule, stand alone. These cases cannot be regarded as shaking the rule that a pre-existing debt cannot be made the basis of a bona fide purchase. Bonner v. Grigsby, 84 Tex. 330, 19 S.W. 511, 31 Am. St. Rep., 48.

"McKamey v. Thorp, 61 Tex. 653, states the reason of the doctrine to be that the creditor taking a conveyance and surrendering an old debt divests himself of no right and places himself in no worse position than he would have been had he received notice of the prior right existing in the property. He advances nothing, and loses nothing if the title is worthless."

Many cases are cited by Judge Simkins.

We overrule the case of Webb v. Burney as being unsound in principle and against the weight of authority in this and other jurisdictions.

We conclude that the bank is not a bona fide purchaser for value, and that it took the property subject to the rights of Mrs. Swann. As against it she was entitled to recover upon establishing the duress and the delivery of the deed without her consent, the failure of the notary to properly take her acknowledgment, and that the lots were her separate property and homestead.

The judgments of the District Court and Court of Civil Appeals are reversed, and judgment is rendered for plaintiff in error.

Reversed and rendered.