Ackerman v. Merle

GRAY, C.

This action is brought for the benefit of creditors of an estate, under the provisions of section 1589 of the Code of Civil Procedure, to recover from defendant three certain pieces of land described in the complaint, on the ground that they were conveyed to said defendant by the plaintiff’s intestate in fraud of said creditors. The trial court determined that the parcels first and third described in the complaint were so fraudulently conveyed, and that the said defendant was a party to said fraud and received said conveyances without any consideration therefor, for the purpose of assisting the said intestate to avoid her debts; but the second-described parcel was found to be the property of defendant, lawfully acquired and owned by her. The court also found that prior to the date of the conveyance of the third piece of land it had been mortgaged to a third party; that said mortgage was a valid subsisting lien upon said land; and that said defendant borrowed money and paid off said mortgage, giving as security for the repayment of the money so borrowed a mortgage upon the first and second pieces. It is also found that as to said third tract of land the deed thereof to the defendant was made, signed, and acknowledged on June 27, 1894, but was not delivered to defendant until September 1, 1896, and that the mortgage was paid by defendant between these two dates. The court decrees that upon her discharging the lien of the mortgage upon the first piece of land, the defendant shall have a lien upon the third piece for the amount paid by her in satisfaction of the original mortgage upon that piece; so that the property recovered shall be placed practically in the condition in which it was at the date of the fraudulent deed. To this arrangement the appealing plaintiff objects, contending that he should recover the property unencumbered, and without allowance for the mortgage lien discharged by the defendant, and upon that ground he appeals from the portion of the decree relating to the said liens.

[171]

The creditors were entitled to subject to the payment of their claims only the property fraudulently conveyed. This property consisted of decedent’s interest in the land, which was that of a mortgagor with a right to redeem from the mortgage. The interests of the mortgagee and the mortgagor in land are for many purposes considered as separate and distinct, and they are each the subject of separate and independent conveyances. By the fraudulent deed in this case the defendant did not acquire the interest of the mortgagee in the land, but she acquired that interest by borrowing money and paying off the mortgage debt. This was an independent transaction, in no way tainted with fraud nor accompanied with an intention to avoid creditors, for it is clear that this interest of the mortgagee could not be subjected to the claims of the creditors of the mortgagor. She having paid off this mortgage debt, the trial court treated the defendant as entitled to be subrogated to the rights of the original mortgagee, and that the creditors’ claims must be secondary and subject to those rights in the hands of the defendant, just as they had been when the mortgage interest was in the original mortgagee. ' Of this the creditors cannot be heard to complain in a court of equity. Their rights in the property are not enlarged or extended by the fraudulent transfer. They can get nothing for the mere sake of punishing the fraudulent grantee, and are entitled in equity only to have such interest in the property applied to the satisfaction of their claims as has been fraudulently conveyed away. The principle involved in the case is aptly illustrated by a quotation from the case of