Bradtfeldt v. Cooke , 27 Or. 194 ( 1895 )

Opinion by

Mr. Justice Moore.

The plaintiff contends that the new matter alleged in the answer does not constitute a defense to the suit, and that the court erred in overruling the demurrer thereto; while the defendant insists that she may plead her participation in the scheme to hinder, delay, or defraud the plaintiff’s creditors, and that, the note and mortgage being evidence of an executory contract, which, as she contends, is illegal, the court should not enforce it. The defendant’s contention proceeds upon the theory that, she being in pari delieto, the maxim, potior est conditio defendentis, applies to prevent a recovery in cases where the contract sought to be enforced has not been executed. The rule is well settled that a court will not, in an action between the parties to an illegal contract, lend its aid either to annul it when executed, or enforce it when executory: Willis v. Hoover, 9 Or. 418; Bernard v. Taylor, 23 Or. 416 (18 L. R. A. 859, 37 Am. St. Rep. 593, 31 Pac. 968). But, while the decisions are quite uniform in affirming the foregoing rule, there is an irreconcilable conflict of judicial opinion in defining an illegal contract, and hence the important question to be considered is whether a conveyance made to hinder, delay, or defraud the grantor’s creditors is valid between the parties thereto when there is a consideration to support it. The statute of frauds, so far as it applies to the case at bar, declares that “eyery conveyance * * * of any estate or interest in lands * * * made with the intent to hinder, delay, or defraud creditors, * * * as against the persons so hindered, delayed, or defrauded shall be void”: Hill’s Code, § 3059. While such conveyances are by the statute declared to be void as to the grantor’s creditors, they are, nevertheless, by the great weight of authority, binding and valid between the parties: Harris v. Harris, 23 Gratt. 737; Hess v. Final, 32 Mich. 515; Clemens v. Clemens, 28 Wis. 637 (9 Am. Rep. 520); Knapp v. Lee, 3 Pick. 452; Dyer v. Homer, 22 Pick. 253; Harbaugh v. Butner, 148 Pa. St. 273 (23 Atl. 983); Still v. Buzzell, 60 Vt. 478 (12 Atl. 209); Bump on Fraudulent Conveyances (2d ed.), 436, 451; Wait on Fraudulent Conveyances, § 395. But in Nellis v. Clark, 20 Wend. 24, it is held that a contract void as to creditors is void between the parties to it, and, when such contract is executory, it will not be enforced by the courts. The force of this authority is much weakened by the dissenting opinion of Nelson, C. J., in which he clearly distinguishes the difference between an illegal contract, in the strict sense of the term, and one fraudulent as respects creditors; the former kind being altogether void, and the latter void only as against the persons hindered, delayed, or defrauded. In the case of Harvey v. Varney, 98 Mass. 118, Foster, J., in commenting upon the question under discussion, said: “Nellis v. Clark, 20 Wend. 24, was decided in the supreme court of New York in eighteen hundred and thirty-eight, by Mr. Justice Cowen and Mr. Justice Bronson, and sustains the position which the present defendants maintain. But a dissenting opinion was delivered by the third judge, Chief Justice Nelson, now of the supreme court of the United States, the reasoning and conclusions of which commend themselves to our judgment in preference to the opinion of the majority of that court.” And Steele, J., in Carpenter v. McClure, 39 Vt. 9 (41 Am. Dec. 370), also said: “We are aware that in Nellis v. Clark, the court, citing the case from Maine, have made the distinction between executed and subsisting contracts under a statute very similar to ours, and have put their decision substantially upon the grounds which have been so well set forth in the exhaustive and learned argument of the defendant’s counsel. With great respect for the able court, the majority of whom concurred in that decision, we are unable to arrive at the same conclusion. So far as we are informed, contracts fraudulent as to creditors have been uniformly treated by our courts as not becoming thereby void between the parties; and such is clearly the spirit of our reported cases: Gifford v. Ford, 5 Vt. 532; Conner v. Carpenter, 28 Vt. 240; Boutwell v. McClure, 30 Vt. 676.” It would be useless to cite further authority upon this subject, for, as was said by Dixon, C. J., in Clemens v. Clemens, 28 Wis. 637, “It will be found, on examination, that these questions have been and are the subject of the most direct and positive conflict of opinion and decision among the courts of the different states of this Union, and sometimes among the courts of the same state. ”

1. Amid such a conflict of authority it should be the duty of a court, when a question is raised for the first time, to adopt that line of decisions which, in its judgment, presents the better reason; and with this object in view we have carefully examined the numerous cases cited by counsel for both the plaintiff and defendant in their exhaustive briefs. It is admitted that where it appears from the plaintiff’s own case, or by proper plea of the defendant, that the contract which is the subject of the suit is void because illegal, the court will not lend its aid either to enforce on one hand or give relief on the other: Buchtel v. Evans, 21 Or. 309 (28 Pac. 67); Ah Doon v. Smith, 25 Or. 89 (34 Pac. 1093). But there is a marked distinction between contracts which are void ab initio and those which are void only as to third parties: Harris v. Harris, 23 Gratt. 737. A contract which was void when executed cannot be made valid by ratification of the parties: Wait on Fraudulent Conveyances, § 489; McIntosh v. Lee, 57 Iowa, 356 (10 N. W. 895); Atlee v. Finck, 75 Mo. 100 (42 Am. Rep. 385). Nor is there any method whereby an illegal contract, — one which never had life, — can be rendered efficacious. A fraudulent conveyance is not void, but merely voidable at the suit of the creditor, and is therefore capable of ratification: Bump on Fraudulent Conveyances, 457; Wait on Fraudulent Conveyances, § 482. A contract entered into to defraud creditors is clearly against the policy of the statute of frauds, as well as against the general policy of the law; but it is not illegal in the strict sense of the term, for the wrong may be condoned by the creditor, and the transaction will thus become purged of the fraud: Millington v. Hill, 47 Ark. 301 (1 S. W. 547). The conveyance being valid between the parties to it, and not illegal in the strict sense of the term, it follows that the defendant should not have been permitted to plead the defense interposed, and there was error in overruling the demurrer.

2. The plaintiff was the owner of lot five in block twenty-one, and, having executed a deed to the defendant for lot five in block fifty-one, in which she had no interest, the question is presented whether there was any consideration for the note and mortgage. The plaintiff having in her complaint described the property as lot five in block twenty-one in Albina Addition to Portland, Oregon, the defendant, in her second defense, inter alia, alleges.that • ‘ said plaintiff, upon the seventh day of November, eighteen hundred and ninety-one, made, executed, and delivered to defendant a warranty deed to the following described real property in the county of Multnomah, State of Oregon, to wit: Lot five (5), block fifty-one (51), Al- • bina Addition, Portland, with the frame buildings .situated thereon, the same being the real property described in plaintiff’s complaint; that no consideration whatever passed from defendant to plaintiff; that defendant has ever since held the deed to said property. At the same time, and as a part of the same transaction, defendant made her certain promissory note in words and figures as follows (here follows a copy of the note set out in the complaint). And at the same time defendant made and executed a mortgage upon said property, the same being the mortgage described in the plaintiff’s complaint, said note and mortgage being made and executed without any consideration whatever.” It is very evident from these allegations that the defendant did not intend to rely upon any failure of title to the lot which the plaintiff purported to convey to her as a defense to the suit. No attempt is made to allege that the plaintiff was not the owner of the lot described in her deed, or that, by reason of any failure of title thereto, there was no consideration for the note and mortgage. It is true, the defendant, upon filing her answer, tendered a deed to the premises, but the rescission which she sought was in consequence of the alleged fraudulent transfer, and not because of any failure of title. A grantee of premises conveyed with warranty has a remedy upon tbe covenants of his deed for a failure of title, and if a perfect title be tendered by the grantor before a decree is rendered, the contract will not be rescinded, unless it appear to the court that the grantee has sustained some loss, injury, or damage by reason of the delay in perfecting the title: Kimball v. West, 82 U. S. (15 Wall.), 377; Noys v. Swope, 8 Gratt. 46; Hughes v. McNidor, 90 N. C. 248. The plaintiff, before the decree was rendered, tendered a deed to the defendant, which contained a correct description of the premises, and there having been no proof of a demand for a rescission of the contract, nOr any loss, injury, or damage sustained by the defendant by reason of any delay in perfecting the title, no rescission should be decreed.

3. That the deed was the consideration for the note and mortgage is admitted by the answer, in which it is alleged that they were executed at the same time, and as parts of the same transaction. When two contracts are contemporaneously executed by the same parties and relate to the same subject matter they must be construed together as constituting but one agreement^*: Dean v. Lawham, 7 Or. 422; Kruse v. Prindle, 8 Or. 158. The mortgage recited that it was given to secure the purchase price of the premises, and, while there was an error in the description contained in the deed, the subject matter related as well to the purchase price and security as to the property conveyed or mortgaged.

4. This brings us to a consideration of the delivery of the mortgage, the execution of which is admitted in the answer. The statute provides that “The execution of a writing is the subscribing and delivering it, with or without a seal”: Hill’s Code, § 574; but, the defendant having denied the delivery, her pleading should be construed as a whole, and not by the use she has made of the technical word “executed.” The answer also alleges that the plaintiff agreed the defendant might retain possession of the mortgage. As the defendant bases her right to retain possession on plaintiff’s agreement, she necessarily admits plaintiff’s right to the possession but for such agreement. No lien could attach to the premises until the mortgage had been delivered by the defendant with the intent to give effect to the instrument: 1 Devlin on Deeds, § 260. Delivery is a question of fact, but this may be inferred from circumstances. The plaintiff testifies that after the mortgage had been properly signed, sealed, witnessed, and acknowledged, it was delivered to her, and that because the defendant had a safe it was agreed that she should keep it. If this testimony is to be believed, the mortgage was executed, and the lien attached to the property. The agreement that the defendant should retain it recognizes the right of the plaintiff to contract with reference to it, and in our judgment corroborates the plaintiff’s testimony. The mortgage having been delivered, the defendant has sustained no injury, even if the plaintiff adopted a ruse to secure its possession. In view of these considerations the decree of the court below must be reversed, and one entered here foreclosing plaintiff’s mortgage for the amount due on the note.

5. The note having provided for a reasonable attorney fee, the plaintiff alleged that five hundred dollars was such sum as the defendant promised to pay in case suit were brought thereon. The defendant denied that any sum was reasonable as such fee, and upon the issue thus formed no evidence was taken, and subsequently the statutory attorney fee only will be allowed.

Reversed.

* The same proposition is considered and affirmed in Blagen v. Thompson, 23 Or. 239. — Reportes.