Smith v. Carey , 50 Tex. Civ. App. 117 ( 1908 )

Clara T. Carey sued C. H. Smith and S. P. Smith to recover the amount of two promissory notes of four hundred dollars each, signed by defendants and payable to R. K. Halsell, alleging that the same had been transferred to her before maturity for a valuable consideration. The defense relied on was non est factum as to S. P. Smith, and that as to the other maker the consideration for which the notes sued on were executed was contrary to public policy and therefore illegal. The trial court before whom the case was tried made his findings of fact from which he entered judgment for the plaintiff as to C. H. Smith and in favor of the defendant S. P. Smith on his plea of non est factum. Defendant C. H. Smith has appealed.

The sole question of law presented by the appeal is whether or not the agreement between R. K. Halsell and appellant C. H. Smith, whereby the former agreed to lend to the latter a sum of money for which the notes in controversy were executed, the said Halsell intending at the time to place such money beyond the reach of his creditors and thereby to defraud them, and the said Smith, having full knowledge of such intention on the part of Halsell, agreeing with him to accept the money and to conceal the transaction from Halsell's creditors, is contrary to public policy and illegal. The question is discussed in Davis v. Sittig, 65 Tex. 497, in a case where suit was brought to recover on a note executed by one Davis to one Lewis in consideration of property conveyed by the latter to the former with intent to defraud his creditors and that intent was known to all parties. The obligation was held to be unenforceable, notwithstanding our statute of fraudulent conveyances does not declare such transaction void except as to creditors, the court saying: "Such statutory declaration does not, however, strip such a transaction of its fraudulent character or give to it standing as a valid contract which the courts will enforce." That case appears to be decisive of the present case, the only difference being that there, property, perhaps other than money, was conveyed to defraud creditors, while here money was loaned for the same purpose. No distinction should be drawn in this respect, since money, like other personal property, is subject to be taken for debt and can as well be the subject of a fraudulent conveyance. The question has been much discussed and respectable authority may be found on both sides of the holding, as will be seen from an examination of the authorities cited in the majority and dissenting opinions in Harcrow v. Harcrow, 58 S.W. 553,64 S.W. 881. But our own court, as will be seen from the decision above quoted, has announced in favor of the doctrine that such an agreement thus tainted with fraud is illegal and an executory contract based on it incapable of enforcement through the courts. See, also, Arnold v. Peoples, 13 Texas Civ. App. 30[13 Tex. Civ. App. 30].

What we have said has been upon the assumption that appellee is in no better position to recover than Halsell, the payee, would have been, since the trial court expressly refused to find whether or not she was an innocent purchaser of the notes for value before maturity, and without notice of any defense against them. This being true, we can not assume in aid of the judgment that she had purchased them before maturity without notice of the vice pleaded. Under the rule announced in this State, which we deem to be a salutary one, not for the defendant's sake, but for the policy of the law alone, appellee is not entitled to enforce the contract sued on without establishing her right to recover as an innocent holder. Reversed and remanded for another trial.

Reversed and remanded.