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Beamer had the right to use all fair and reasonable means to buy the land from their owners at the lowest price which they were willing to receive for it. There is no evidence in this case that they made any false representations to the executors or to Bowling, or that they used any unfair means to obtain a contract for the purchase of the lands, while the fact that the agent, C. W. Comstock, was willing to take them, and Reid and Green sold them to him at the same price at which the complainants were expecting to buy them, is very persuasive evidence that no fraud was perpetrated upon the executors.
Moreover, if the charges which the defendants make against the complainants were true, they would constitute no defense to this suit. Their alleged offenses were not against the defendants, but against the former owners of this property. These owners have made no complaint and their rights and remedies are not here in question. The only issue here is whether or not the constructive trust which the betrayal of confidence by the agent Comstock has raised shall be enforced. General iniquitous conduct, reprehensible acts toward third parties, do not deprive a suitor of his right to justice in a court of equity. Wrongful conduct in the very act or matter which constitutes the complainant's ground of action, and that alone, will repel from a court of equity on the ground that “lie who comes into equity must do so with clean hands." This rule does not disqualify any complainant from obtaining relief who has not dealt unjustly in the very transactions concerning which he complains. Shaver v. Heller & Merz Co., 48 C. C. A. 48, 61, 108 Fed. 821, 834; Woodward v. Woodward, 41 N. J. Eq. 224, 225, 4 Atl. 424; Dering v. Earl of Winchelsea, i Cox, Ch. 318, 319; Lewis & Nelson's Appeal, 67 Pa. 153, 166; Bateman v. Fargason, 4 Fed. 32, 33, 2 Flip. 660; Bisp. Eq. 61; Mahoney v. Bostwick, 96 Cal. 53, 61, 30 Pac. 1020, 31 Am. St. Rep. 175. The acts charged against the complainants, even if they had been committed, did not tend to perpetrate any wrong or inflict any injury upon the defendants, raised no equity in their favor, and constituted no defense to the enforcement of the trust which their violation of duty established.
One of the defenses to this suit was that the defendant James C. Comstock, who now holds the title to the lands in question, was a bona fide purchaser thereof for value without notice of the claim of the complainants. The court below found that this defense was not sustained by the evidence, and that James C. Comstock stood in the shoes of his brother, C. W. Comstock, the agent of the complainants. Counsel for the defendants have not argued or suggested in this court that there was any error in this conclusion. But, as the case must now be remanded for final decee, the evidence and the law upon this question have been carefully re-examined. James C. Comstock was a brother of C. W. Comstock. C. W. Comstock procured his option to purchase the land on September 15, 1899. He paid $75 for it at that time. About October 16, 1899, he paid $1,925 in part payment of the purchase price. On March 1, 1900, $6,000 more was paid. The deed was taken to James C. Comstock, and the latter made his note and trust deed for $30,000. C. W. Comstock managed the land, conducted all the correspondence and business, caused the leases to
be taken to himself, acted in every way as the owner, and his brother, James C. Comstock, acted as his agent in the entire transaction. On January 4, 1900, James C. Comstock deposited with his brother, C. W. Comstock, $10,000, and they say that out of this deposit the $2,000 which C. W. Comstock had paid in September and October was repaid to him, and the $6,000 was paid on March 1, 1900. The option to purchase the land was assigned to James C. Comstock about October 12, 1899. He never paid his brother $1 for the assignment of this option or for the land, although the evidence is conclusive that the late ter considered it of much greater value than the amount of the purchase price he had agreed to pay for it. In February, 1900, before the $6,000 was paid, James C. Comstock was notified of the claim of Trice and Beamer. These facts compel the conclusion that James C. Comstock cannot defeat this suit on the ground that he is a bona fide purchaser without notice, because the evidence convinces that he is the mere agent and representative of his brother, holding the property for him, and because he received notice of the claim of the complainants before he had paid more than $2,000 on account of the purchase of the property, and probably before he had paid anything. The actual payment of the money which constitutes the purchase price before the receipt of notice is indispensable to the maintenance of the claim that one is a bona fide purchaser without notice. Jewett v. Palmer, 7 Johns. Ch. 64, 67, 68, 11 Am. Dec. 401; Hardingham v. Nicholls, 3 Atk. 304; Harrison v. Southcote, I Atk. 538; Story v. Lord Windsor, 2 Atk. 630; Kiefer v. Rogers, 19 Minn. 32; Wallace v. Wilson, 30 Mo. 335.
The result is that the complainants are entitled to the relief which they sought by their bill. The evidence in this case has been carefully examined. It does not lead to the conclusion that the defendants or either of them intended to perpetrate any injustice or wrong upon the complainants or to do any act which they deemed inconsistent with the rules of honor and fair dealing. But the fiduciary relation through which the agent, C. W. Comstock, procured his information and knowledge of the location, character, and value of this tract of land, his acceptance of the agency, his leading of the probable purchaser to the property, his receipt from his principals of the expenses of his trip, forbade him from purchasing this land for himself, and thereby preventing his principals from effecting a sale of it, and charged it in his hands with a constructive trust in their favor.
The decree below is accordingly reversed, and the case is remanded to the Circuit Court, with directions to enter a decree to the effect that the defendants hold the title to the 1,925 acres of land described in the bill in trust for the sole use and benefit of the complainants; that upon the payment to the defendants or their attorneys of the amount of money which they have expended in purchasing the lands, with interest thereon at the legal rate, from the respective times of their payments, and upon the payment and surrender to James C. Comstock of his note for $30,000, which he executed in part payment of the purchase price, or upon the execution and delivery to him of a bond, with sufficient sureties, approved by the judge and conditioned to pay the note of $30,000, and to hold the defendant James C. Com
stock harmless therefrom and from the trust deed or mortgage securing the same, the defendants shall convey the lands in dispute to the complainants; that in default of such conveyance the title shall be passed by decree; and that the defendants shall pay the costs of the suit.
CLAYTON et al. v. EXCHANGE BANK OF MACON.
In re JOSEPHSON.
No. 1,179. 1. FRAUD ON CREDITORS-WITHHOLDING MORTGAGE FROM RECORD-ENHANCE
MENT OF CREDIT-ALLOWANCE OF MORTGAGE DEBT IN BANKRUPTCY.
Code Ga. 1895, $S 2724, 2727, require mortgages to be recorded, and provide that a failure to record will postpone them to subsequent lienees and purchasers. Section 2695 provides that every conveyance or contract made to defraud creditors—such intention being known to the party taking-shall be void, but a bona fide transaction, without ground for reasonable suspicion, shall be valid. A storekeeper who had done business with a bank for 20 years executed mortgages to it, covering bis entire property, consisting of realty, and also his stock in trade then existing and to be acquired. The mortgages were withheld from record, though the storekeeper and bank president both denied any agreement therefor. The storekeeper purchased goods, referring his vendors to a rating in a mercantile agency which he had given without mentioning the mortgages. He filed a voluntary petition in bankruptcy, and on the same day and hour, in response to notice thereof by telephone, the bank recorded the mortgages. The bank president testified that he had no reason to suspect the storekeeper's insolvency until three or four days before his bankruptcy, but admitted that he knew that the recording of the mortgages would have destroyed the storekeeper's credit, and that he knew the mortgagor was going to New York to buy goods, and that the purpose of keeping the mortgages off the record was not to impair his credit. Held, that the mortgage debts were not entitled to priority in the bankruptcy proceedings over the claims of the vendors subsequently selling goods to the storekeeper.
McCormick, Circuit Judge, dissenting.
Appeal from the District Court of the United States for the Southern District of Georgia.
For a period of about 20 years next preceding the year 1900, Simon Josephson was engaged in business as a merchant in Macon, Ga. During all that time the Exchange Bank of Macon (hereinafter called the "Bank") was engaged in the same town in the banking business, and they had dealings for that period as banker and client. In the years 1899 and 1900 Josephson executed and delivered to the bank notes secured by mortgages for sums amounting, in the aggregate, to more than $13.250, as follows: (1) Note made May 9, 1899, due at 6 months, for $5,000, secured by mortgage of same date on real estate in Georgia. (2) Note made September 19, 1899, due at four months, for $750, secured by mortgage of same date on real estate in Georgia. (3) Note made February 16, 1900, due at six months, for $2,500, secured by mortgage of same date on real estate in Georgia. (4) Three notes made March 28, 1900, due August 15, September 15, and October 15, 1900, each for $300, secured by mortgage on real estate, and also on Josephson's stock of merchandise then on hand, and “on future purchases of goods made for the purpose of replacing such stock sold in due course of trade.” The foregoing notes were renewed when due, and extended on the payment of interest.
(5) Two notes made July 25, 1900, one due at four months, the other at five months, each for $1,750, secured by mortgage on real estate in Georgia; also on stock of merchandise on hand and to cover future purchases of goods to replenish stock. In January, 1900, Josephson made a statement to Dun's Mercantile Agency showing the net value of his property to be $34,070, but did not mention the mortgages. After executing the last mortgage, he went to New York and bought goods. He referred the wholesale merchants from whom he purchased goods to Dun's Commercial Agency to show his financial condition. He contracted many new debts, and on November 17, 1900, at 5 o'clock p. m., he filed his voluntary petition in bankruptcy. All of the mortgages meantime had been withheld from record. But on November 17, 1900, at 5 o'clock p. m., the bank, by its president, filed all of the mortgages in the superior court of Bibb county, Ga., for record. After Josephson was adjudicated a bankrupt, the bank filed in the district court its proof of claim, founded on the notes and mortgages. It claimed a valid lien on the property described in the mortgages. E. S. Clayton and S. H. Myers, the trustees of the bankrupt's estate, filed objections to the claims. These objections were made in behalf of the unsecured creditors, who became creditors, it is admitted here, after the execution of the mortgages, and while they were unrecorded. The validity of the debts was not contested, but it was denied that the bank had a valid lien or was entitled to priority. The objections relied on here were, in substance, (1) that the failure to record the mortgages before the petition in bankruptcy was filed makes them void under the provisions of the bankrupt act; and (2) that they are. void under the common law and statutes of Georgia, because withheld from record under circumstances that make them fraudulent against the subsequent creditors of the bankrupt. The mortgages and notes were in evidence. Only three witnesses were examined-Simon Josephson, the bankrupt; C. E. Leonard, discount clerk of the bank; and J. W. Cabaniss. president of the bank. The pertinent substance and effect of their evidence not stated above will be found in the opinion. The referee in bankruptcy overruled the objections to the mortgages, and held that they were valid liens, and the District Court approved the decision of the referee. The trustees appealed to this court, and it is assigned, with proper specifications, that the District Court erred in the decree rendered.
F. C. Foster and C. Henry Cohen (Foster & Butler, on the brief), for appellants.
A. L. Miller, for appellee.
SHELBY, Circuit Judge, after stating the case as above, delivered the opinion of the court.
The appellants' first contention is that the mortgages executed by Josephson to the bank are void under the provisions of the bankrupt act, because they were not placed on record before Josephson filed his petition in bankruptcy. This view is urged on our attention with great earnestness, and with the citation of many authorities. The view we take of the case, however, makes it unnecessary for us to decide this question.
The appellants' second contention is that the mortgages are void under the common law and the statutes of Georgia. It is conceded by the learned counsel for the appellee that if these mortgages, on the facts shown in the record, are void under the laws of Georgia, they would not be enforced in the federal courts as valid liens against the general creditors of the bankrupt. Etheridge v. Sperry, 139 U. S. 276, 11 Sup. Ct. 565, 35 L. Ed. 171. It is provided by statute in Georgia that a mortgage must be recorded. Code 1895, § 2724.
Mortgages on real estate must be recorded in the county where the land lies; on personalty, in the county where the mortgagor resided at the time of its execution, if a resident of the state. If a nonresident, then in the county where the mortgaged property is. Id. S 2726. The effect of the failure to record mortgages is provided for by statute:
"Mortgages not recorded within the time required remain valid as against the mortgagor, but are postponed to all other liens created and obtained, or purchases made prior to the actual record of the mortgage. If, however, the younger lien is created by contract, and the party receiving it has notice of the prior unrecorded mortgage, or the purchaser has the like notice, then the lien of the older mortgage shall be held good against them.” Code 1895, $ 2727.
The effect of these statutes, as construed by the Supreme Court of Georgia, is that a judgment obtained before the mortgage is recorded has priority over it, and by the failure to record a mortgage in time the mortgagee risks the precedence of after-acquired mortgages and judgments. Hardaway v. Semmes, 24 Ga. 305; Richards v. Myers, 63 Ga. 763. The contention of the learned counsel for the appellee is unquestionably correct—that the mere failure to record a mortgage does not affect its validity as between the parties, and that the mortgage would remain an incumbrance upon the property, entitled to satisfaction prior to the claim of creditors who had established no liens on the property. But in view of the facts of this case, it will be seen that a proper conclusion can only be reached by considering not only the registration law, but also the laws requiring mortgages and conveyances to be made and held in good faith.
Both by statute and by the common law that prevails in Georgia, certain acts by debtors are made fraudulent in law against creditors and others, and as to them null and void. Among these:
"Every conveyance of real or personal estate, by writing or otherwise, and every bond, suit, judgment and execution, or contract of any description, had or made with intention to delay or defraud creditors, and such intention known to the party taking; a bona fide transaction on a valuable considera. tion and without notice or ground for reasonable suspicion shall be valid." Code Ga. 1895, 8 2695, subd. 2.
In Robinson v. Woodmansee, 80 Ga. 249, 4 S. E. 497, the trial court instructed the jury that:
“If they believed that Robinson made these mortgages, and there was an understanding with the persons receiving them that they should be kept off the record for the purpose of protecting his financial credit, then the mortgages would be fraudulent as to all persons extending credit to Robinson after this date."
The court, commenting on this charge, said:
"We think this part of the charge erroneous. Under the facts of the case, it was not, as a matter of law, fraudulent to agree not to record the mortgages. It is not necessarily a fraud to agree not to record a mortgage. The agreement or understanding may have been made with the most honest intention. It is for the jury to say what the intention was-whether the mort. gages were given by the debtor for the purpose of hindering, delaying, or defrauding his creditors.
It has been held that an arrangement or understanding in regard to withholding mortgages from record until the mortgagors should have trouble did not render the mortgages void, but was