Horn v. Volcano Water Co. , 13 Cal. 62 ( 1859 )

Field, J. delivered the opinion of the Court

Baldwin, J. and Terry, C. J. concurring.

It was error to render judgment for the defendants. A copy of the note in suit is attached to the complaint, and the answer of the company is simply a general denial, without verification ; and thus, by force of the statute, the genuineness and due execution of the note by the company, are to be regarded as admitted. The claims asserted by the other defendants are not inconsistent with a recovery by the plaintiff. In the judgment their rights could have been fully protected. Upon the pleadings, therefore, as between the original parties to the action, the plaintiff was entitled to judgment. Admitting that the matter set up by the intervenors constituted a fraud, and was fully established, we do not perceive how it could affect the right of the plaintiff to a judgment as against the company. The most that the intervenors could claim, was protection against the enforcement of the judgment to the prejudice of their rights; and this could have been effected by its postponement to their claims in the disposition of the proceeds arising from the sale of the mortgaged premises. As between the parties, the note and mortgage were valid; they were void, if at all, only as against creditors and subsequent purchasers. (Henriquez v. Hone, 2 Edw. Ch. Rep. 120; Anderson v. Roberts, 18 John. 514.)

But, without resting the case upon this, we pass to a consideration of the merits of the intervention: The petition of the creditor, Rawle, does not disclose any right on his part to intervene; it shows that he was a simple contract creditor, holding obligations against the company—but it does not show that any portion of them was secured by any lien upon the mortgaged premises. His intervention is only an attempt of one creditor to prevent another creditor obtaining judgment against the common debtor—a proceeding which can find no support, either in principle or authority. The interest mentioned in the statute, which entitles a person to intervene in a suit between other parties, must be in the matter in litigation, and of such a direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment. The provisions of our statute are taken substantially from the code of procedure of Louisiana, which declares, that, “in order to be entitled to intervene, it is enough to have an interest in the success of either of the parties to the suit;” and the Supreme Court of that State, in passing upon the term interest, thus used, held this language : “ This, we suppose, must be a direct interest, by which the intervening party is to obtain immediate gain, or suffer loss, by the judgment which may be rendered between the original parties; otherwise, the strange anomaly would be introduced into our jurisprudence of suffering an accumulation of suits in all instances where doubts might be entertained, or enter into the imagination of subsequent plaintiffs, that a defendant against whom a previous action was under prosecution might not have property sufficient to discharge all his debts. For, as the first judgment obtained might give a preference to the person who should obtain it, all subsequent suitors, down to the last, would have an indirect interest in defeating the action of the first.” (Gasquet et al. v. Johnson et al. 1 Louis. Rep. 431.) To authorize an intervention, therefore, the interest must be that created by a claim, to the demand, or some part thereof, in suit, or a claim to, or lien upon, the property, or some part thereof, which is the subject of litigation. No such claim or lien is asserted in the petition of Rawle, and his fight to intervene must, in consequence, fail. (Brown & Sons v. Saul et al. 4 Martin, N. S. 434.)

The petition of Shaffer and others, stands upon a different footing. It shows that they were judgment creditors, having liens, by their several judgments, upon the mortgaged premises at the time of the institution of the present suit. As such, they were subsequent incumbrancers and necessary parties to a complete adjustment of all interests in the mortgaged premises, though not indispensable parties to a decree determining the rights of the other parties as between themselves. For such adjustment, the Court would have been justified in ordering them to be brought in, either upon their own petition, as in the present case, or by an amendment to the complaint. (Sargent v. Wilson, 5 Cal. 504; Moss v. Warner, 10 Cal. 296; Montgomery v. Tutt, 11 Cal. 307.)

It would probably be the better course for the Court to direct, in a case like the present, an amendment to the complaint. No question, however, as to the form in which these parties assert their right is made, and we could not regard the point, if it were made, as essential to the determination of the priorities of the several liens. Looking, then, to the petition of these judgment creditors, and treating it as an answer to the complaint, and the parties as asserting a priority in the liens of their several judgments over the lien of the mortgage, we find its allegations insufficient, if established, to justify a decree postponing the mortgage to the judgments. These judgments were all rendered long after the execution of the note and mortgage;—with one exception, more than a year afterwards. It is not averred that these intervenors were creditors of the company when the note and mortgage were executed, or that the company was then indebted to any other person, or that the note and mortgage were given with intent to defraud subsequent creditors. It only avers that they were not executed by the Trustees by any authority from the company, or to pay or secure any of its debts, or for any consideration received by it; but were given to pay, or to secure the payment of, a debt of certain stockholders of the company, contracted to meet the assessments levied upon their shares. If these averments were true, the subsequent creditors are not in a position to complain. It rests only with the company to question the authority of the Trustees, or the validity of the note and mortgage for want of sufficient consideration. Subsequent creditors have nothing to do with them. The Statute of 13th of Eliz. (Ch. 5,) is the foundation of the acts on the subject of conveyances to hinder, delay, or defraud, creditors in the several states, and has been substantially incorporated into our law. (Act concerning" Fraudulent Conveyances and Contracts, Sec. 20.) This statute, says Hovenden, “declares all gifts, conveyances, and alienations, of real or personal estate, whereby creditors may be delayed or defrauded, void as against such creditors; but judicial interpretation has determined that creditors at the time of the transaction are, alone, intended by the statute. Thus, a settlement made after marriage, and therefore considered voluntary, will be maintained against subsequent creditors, provided the settler was not indebted at the time he made it. This general rule must, however, be qualified, so as to exclude cases of positive fraud. It is not necessary that a man should be actually indebted, at the time ho enters into a voluntary settlement, to make it fraudulent; if he do so with a view to his being indebted at a future time, it is equally a fraud, and ought to be set aside.” (2 Vol. 74.)

As against subsequent creditors, then, a conveyance, even if voluntary, is not void, unless fraudulent in fact; that is, unless made with the view to future debts, though evidence of an intent to defraud existing creditors is deemed sufficient prima facie evidence of fraud against subsequent creditors. (Sexton v. Wheaton, 8 Wheat. 229; Bennet v. Bedford Bank, 11 Mass. 421; Benton v. Jones, 8 Conn. 186; Carlisle v. Rich, 8 N. Hamp. 44; Miller v. Thompson, 3 Porter, 196; Bogard v. Gardley, 4 Smedes & M. 302; Wadsworth v. Havens, 3 Wend. 411; Elliott v. Horn, 10 Ala. 348; Edwards v. Coleman, 2 Bibb. 204; Smith v. Lowell, 6 N. H. 67; Parkman v. Welch, 19 Pick. 231.)

The only statement in the petition of the creditors in reference to any indebtedness of the company is that before the execution of the note and mortgage the company had become indebted to a much greater amount than the amount of the capital stock paid in. This statement may be strictly true, and yet the fact exist that the company was not at the time indebted in any amount whatever. The indebtedness may have been contracted, and have been entirely canceled, or the company may have been in possession of property greatly exceeding its existing obligations, and with which such obligations were afterwards entirely satisfied.

The views which we have expressed dispose of the case upon the pleadings and petitions of intervention, and render it unnecessary to pass in review the questions raised upon the testimony. The judgment must be reversed, and the Court below directed to enter a judgment against the company for the amount due on the note described in the complaint, and to decree a sale of the mortgaged premises, and the application of the proceeds of the sale : first, to the payment of such judgment and the amount due the other defendants, such payment to be made to the parties pro rata; and, second, to the payment of the several judgments of the interveners, Shaffer and others, in the order in which they became liens upon the mortgaged premises; and to dismiss the petition of the intervener, Rawle.

Ordered accordingly.