Kellum v. Smith , 33 Pa. 158 ( 1859 )

The opinion of the court was delivered by

Strons, .J.

The case presented is this. In 1848, Israel Smith was the legal owner of the “ Amos Achia claim” (part of the Benjamin Achia farm), and the equitable owner of the “ mill lot,” and of another tract of land called the “ Sarah Morrison tract.” In the summer of that year, he caused the mill lot and the Morrison tract to be conveyed to Bell & Co., under an arrangement that they should hold the property as security for his indebtedness to them, and also for future advances which they agreed to make, to enable him to improve the mill lot. At the time of these conveyances, Smith was considerably indebted to Bell & Co., and largely to other creditors residing in Baltimore and elsewhere— indebted, perhaps, in an amount greater than the value of the property which he then held. Bell & Co. had knowledge of the indebtedness when they entered into this arrangement; and it may fairly be assumed, that this knowledge was the moving cause of the conveyances. However that may be, the purpose was security to the grantees. They took the lands as security for what they had already advanced, and for what they were still to advance, to enable Smith, the equitable owner, to make improvements upon the mill property. They agreed to reconvey whenever their advances should be repaid. This arrangement made Bell & Co., at most, but mortgagees of the property, and left an equity of redemption remaining in Smith. After the deeds were made, Bell & Co. continued to make advances, and Smith remained in possession of the property, making large improvements upon it, paying the taxes, and treating it ostensibly as his own.

On the 13th of December 1848, Saunders and Crook obtained a judgment against Smith, which was a lien upon his equity of redemption. This judgment was revived on the 29th of June 1855, against the debtor, but not against terre tenants. • By virtue of executions founded upon it, the property in controversy was levied upon, condemned, and sold to Alanson B. Smith, the plaintiff in this ejectment. He received the sheriff’s deed on the 20th of December 1855. Previous to this sale, however, the whole Benjamin Ackla farm, including the “ mill lot,” had been levied upon as the property of Israel Smith, under an execution issued at the suit of John Ackla and others. The levy was made under a fi. fa. issued to September Term 1849; the property was condemned, and on the 6th of May 1850, was sold to Bell & Co. The sheriff’s deed to them was acknowledged on the 9th of the same month. Unless this sale was fraudulent, or unless, in some way, it raised a trust for the debtor, it, of course, destroyed the equity of redemption, and divested all the interest of Israel Smith — leaving nothing to pass under the subsequent sheriff’s sale to Alanson B. Smith. The contest in this case is between the claimants under these two sales. It may be added, that both were effected under judgments for debts existing when the original arrangement was made between Israel Smith and Bell & Co.

The case does not require us to consider, whether a mortgage to secure an existing debt, and future advances for the purpose of improving the mortgaged property, can be regarded as fraudulent against other creditors, even though the mortgagee had knowledge of the existence of other creditors, and intended to obtain priority over them, when he took the mortgage. It is possible, that on another trial, that question may be distinctly presented. The material question now is, whether, after the sheriff’s sale to Bell & Co., in May 1850, there was any trust in them for Israel Smith, the debtor. As already seen, that sale was made under an execution to which they were strangers. According to the testimony offered by the plaintiff in the court below, when the property was advertised to be sold, Israel Smith called upon them, and “agreed with them to bid off the property for him, and to hold it on the same terms as they held the rest of his property.” Those terms were, that they should convey to him when they were repaid their advances. In reference to this part of the case, the defendants in the court below prayed the court to instruct the jury, “ that the alleged agreement between Wm. H. Bell, George W. Hollenback, and Jacob Hand (Bell & Co.), that they should, at the sheriff’s sale, on the execution to William Gibson’s use (John Ackla and others) v. Israel Smith, bid off the property, and hold it to secure the indebtedness of Israel Smith to them, was void by the statute of frauds and perjuries — and they as the purchasers at that sale had a right to sell the property to whomsoever they pleased — and the plaintiffs claiming by virtue of a lien and sheriff’s sale, since they thus acquired the title, cannot recover.” The learned judge refused to affirm this proposition, and charged the jury that “ if they believed the evidence of Israel Smith, the agreement of Bell & Co. to purchase for him, and to hold under the arrangement stated, created a resulting trust, even though there had been no design to hinder, delay, and defraud creditors.” To this we cannot assent. A resulting trust cannot be created in such a way. Such a trust can arise only from the payment of the purchase-money, or from fraud in the purchase; fraud perpetrated by the grantee. Here the purchase-money of the sheriff’s sale was paid by Bell & Co., and consequently the beneficial interest, as well as the legal estate, went to them. Had there been fraud in that purchase, they might have been held trustees ex maleficio. But the fraud which will convert the purchaser at a sheriff’s sale into a trustee, ex maleficio, of the debtor, must have been fraud at the time of the sale. Subsequent covin will not answer, any more than subsequent payment of the purchase-money will convert an absolute purchase into a naked trust. When the purchaser at a sheriff’s sale promises to hold for the debtor, and afterwards refuses to comply with his engagement, the fraud, if any, is not at the sale, not in the promise, but in its subsequent breach. That is too late. It is abundantly settled, that equity will not decree such a purchaser to be a trustee, unless there is something more in the transaction than the mere violation of a parol agreement. This was asserted in Robertson v. Robertson, 9 Watts 32; in Haines v. O’Conner, 10 Watts 313; in Fox v. Heffner, 1 W. & S. 372; in Jackman v. Ringland, 4 W. & S. 149, and in Barnet v. Dougherty, 8 Casey 371. What more was there in this case than the violation of a parol agreement to hold the property for the benefit of the debtor? The purchasers practised no artifice. They did not proclaim at the sale that they were buying for Smith (as was done in the case of Brown v. Dysinger, 1 Rawle 408), and thus obtain the property at a reduced price. They were not even present. They caused nothing to be done there, except notice to be given of the title which they then held. Of this, Smith had no reason to complain. Whatever representations were made at the sale, were made by him alone, and at his own instance. The case of Brown v. Dysinger has been greatly misunderstood. What it was not intended to rule, was clearly stated by Judge Rosees, in Haines v. O’Conner. Nor is the ruling in Morey v. Herrick, 6 Harris 123, necessarily in conflict with the doctrine of Jackman v. Ringland and its kindred cases. There the trust was created by a participation in the purchase, and by payment of part of the purchase-money. The case did not call for the observations of the judge who delivered the opinion of the court, respecting the bad faith or the fraud which raises a legal implication of a trust. It may in all cases be assumed, that when a promise is made to buy or to hold for another, confidence is invited, and more or less reposed. So it is, in every parol contract for the purchase of lands; but the statute of frauds would be worse than waste paper, if a breach of the promise created a trust in the promissor, which the contract itself was insufficient to raise. It may be that if, at the instance of the promissor, the promissee is induced to incur some expense, or perform some act which he otherwise would not have done, the former shall be estopped from denying the trust. But however this may be, mere quiescence, or omission to take other steps to obtain the property, though induced by faith in the promise, is not available for such a purpose. We think, therefore, that the court erred in their answer to the defendant’s fourth point, as well as in permitting Israel Smith to testify, that if he had not made the arrangement with Bell & Co. he would have made it with some other person, or would have procured the means to pay the debt — that he had the means to pay it, and could have made an arrangement to have the property bid off for him. As the case was put to the jury, it is impossible for us to say, that their verdict was not founded upon the assumption of a resulting trust in favour of the debtor, growing out of the alleged arrangement prior to the sheriff’s sale to Bell & Co.

We come now to the question of notice. Overton purchased from Bell & Co. after they had bought at sheriff’s sale, and gave his bond for the purchase-money. Upon this bond, he paid $1000 on the 23d of June 1855. Had he notice before this payment of any right in Saunders & Crook, or any creditor of Smith, to sell the property as Smith’s ? It is obvious that this inquiry is material, only upon the supposition, that the original conveyances to Bell & Co., and also the subsequent sheriff’s sale to them, were fraudulent as to creditors, or that the latter left a resulting trust in Smith, an equitable title, which could be seized and sold. At the time of Overton’s purchase, Smith was in possession of the “mill lot,” under a contract with Bell & Co. that he should run the saw-mill for them. The court instructed the jury, that “ if they should find the arrangement between Bell & Co. and Smith was intended to hinder, delay, and defraud creditors, then Edward Overton, the vendee of Bell & Co., stands in no better position than Bell & Co., and cannot be regarded as a bond fide purchaser without notice; first, because the possession of Smith was constructive notice of his interest, so far as the rights of creditors are involved; and second, because on the 19th of May 1855, before any portion of the purchase-money had been paid by him to Bell & Co., he had actual notice of Smith’s interest, or such notice as ought to have put him on inquiry, for, on that day, Smith filed an affidavit in the case of Edward Overton v. William H. Bell, George W. Hollenback, and Jacob Hand, in the Common Pleas of Bradford county, setting out his interest in the premises, as the foundation of á rule to show cause why restitution should not be awarded.”

This, perhaps, was a correct answer to the point which the defendants below propounded, and therefore cannot properly be complained of as erroneous. But as the case goes back for another trial, it is proper to observe, that the inquiry for the jury was not whether Overton had notice of Smith’s interest. If there was no resulting trust, the question was one of fraud upon creditors. Smith’s interest was of no consequence to any purchaser, for that was divested by the sheriff’s sale. It cannot be pretended, that he could have recovered in ejectment even against Bell & Co. But if the transaction was fraudulent, the rights of the creditors were superior to those of Smith. They claim not through the conveyances, but paramount to them; in spite of them. The notice, therefore, that could affect Overton, must have been notice of the rights of the creditors to resort to the land as Smith’s, notwithstanding his arrangement with Bell & Co., and the sheriff’s sale to them.

We will not enter now upon the inquiry, how far the possession of land is constructive notice to a purchaser of any other title or rights than those of the person in possession. That is a difficult subject, and will require careful investigation when it shall be presented. It is not now necessarily involved in this case. If it be conceded, that Smith’s possession, after his arrangement with Bell & Co. in 1848, was constructive notice of -whatever title remained in him, it by no means follows that his possession after the sheriff’s sale was notice of any title remaining in him then; much less of any rights in his creditors. Possession by a debtor, even of personalty, after a sheriff’s sale, is no badge of fraud, though possession of personal property is the chief evidence of title. Why then should the possession of land sold at a judicial sale raise a presumption that the sale, though good against the debtor, was void against others ? Admit that the purchaser from Bell & Co. was bound to inquire — admit that the continued possession of Smith made inquiry his duty — yet what would he have learned upon inquiry ? At most, only that, under a former arrangement between Bell & Co. and Smith, a mortgage fraudulent as to creditors had been given — that notwithstanding the mortgage, a credit- or intended to be defrauded had sold at sheriff’s sale Smith’s interest in the land, and that Bell & Co. had bought it at that sale, having promised by parol to convey it to Smith when he should pay the purchase-money and discharge his other indebtedness to them. Surely Smith’s possession was notice to Overton of nothing more than the truth; of nothing more than he could have learned by inquiry. Had he known all this, why would he not have been a bond fide purchaser ? And, though he might not have stood in any better position than that in which Bell k Co. stood after the sheriff’s sale, as regards Smith, what knowledge could he have had of creditors’ rights ? We say nothing now of Smith’s disclaimers of ownership while he was in possession; nothing of his written agreement to hold the property as the agent of Bell k Co., all of which was communicated to the purchaser before he bought. This was properly presented to the jury by the learned judge, and this might not affect creditors, if the prior conveyances were fraudulent. The case of Hood v. Fahnestock, 1 Barr 470, was decided upon its peculiar circumstances. I do not understand it as laying down the broad proposition that possession by a grantor after a conveyance, is notice that the conveyance which he has made is fraudulent as against creditors. If it be so, then such a possession, instead of being an assertion of right in the occupant, is notice of rights hostile to him. Then no man can safely buy land which is not in the actual possession of the vendor. But we repeat, it is not our intention to consider this question. That which the court denominated the actual notice given by Smith’s affidavit, extended no further than to give knowledge of the original mortgage or pledge. It was no more operative than' was Smith’s possession. It did not pretend, that he had any title after the sheriff’s sale.

In the aspect which this case presents to us, however, the question of notice does not seem to be of much importance. If, as we have seen, there was no resulting trust arising from the sale to Bell k Co., then, even on the supposition that the original arrangement was a fraudulent one, we do not perceive how any title remained in Smith, or how any rights to resort to the land survived to the creditors, after they had once sold it. If this be not so, it must be because Bell & Co., the original fraudulent pledgees, became the purchasers at the sheriff’s sale. That sale ,however, was not in pursuance of their previous arrangement with Smith. It was no link in the chain of the alleged fraud. It was effected at the suit of an outside creditor, one of the persons alleged to have been intended to be defrauded. Under such a proceeding, why could not Bell & Co. purchase ? Grant that, if it had been their own judgment, taken as a part of the machinery of the fraud, they would have continued trustees after the sale, what then ? It was a sale over which they had no control. If they held a vicious security before, might they not strengthen it by buying a good title? Might they not even abandon all former claims, and purchase as if nothing had ever taken place between them and Smith? The case seems to have been put to the jury, on the ground that it was an inevitable conclusion, that the sheriff’s sale was fraudulent, if the original arrangement was. In this we think there was error. They were transactions entirely disconnected. The sheriff’s sale divested all Smith’s interest, and all the rights of his creditors to pursue the land, unless it was fraudulent in itself.

It is unnecessary to notice the other errors assigned in detail. They are sufficiently noticed in what we have already said. As the case goes back for another trial upon the principles here laid down, some of them are unimportant, and the others are embraced in those we have considered.

We may add, that we do not perceive how the plaintiffs in error were injured by the instructions given to the jury, to which exception is taken in the third assignment.

Judgment reversed, and a venire de novo awarded.