One committing a fraud does not become an outlaw and
caput
lupinum. Although one by reason of fraud may have no standing
to rescind his transaction, if it is rescinded by one having the
right to do so, the court should do such justice as is consistent
with adherence to law. Although one holding a mortgage may have
fraudulently endeavored to prevent another from acquiring the fee
of the property, he may still be entitled to have his mortgage paid
if the other finally gets the property.
Deeds and discharges of mortgages, although different
instruments, may be parts of one transaction, and one setting aside
the deed may also be required to give up the discharge so as to
restore other parties to the condition in which they stood prior to
the transaction.
18 Ariz. 151, reversed
The facts are stated in the opinion.
Page 217 U. S. 500
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a complaint in the nature of a bill in equity, brought
by the appellee Nugent to set aside a deed and mortgage as a cloud
upon his title to certain land. The defendant denied the
allegations of the complaint, and filed a cross-complaint to set
aside the deed to the plaintiff. The case was tried before a judge
without a jury, and he made findings of fact of which the following
is an abridged statement. The land was subject to two mortgages
held by the defendant, upon which a judgment of foreclosure had
been rendered, the sum due being $15,700 and interest. Mrs. Heyl,
the mortgagor and owner of the equity, sold and conveyed the land
to Nugent on January 4, 1905, he agreeing to procure the payment of
the mortgage and judgment liens. On January 9, the day before that
fixed for the mortgage sale, the defendant, having knowledge of the
conveyance to Nugent and having evaded Nugent's efforts to pay the
mortgage debt, induced Mrs. Heyl to convey a part of the premises
to him absolutely, in satisfaction of $10,000, and to mortgage the
residue for $5,700, and recorded the deeds before Nugent had
recorded the deed to him. He also, with fraudulent intent to defeat
Nugent's title, it is said, although the possibility is hard to
conceive, satisfied of record the former mortgages and judgment
liens, the only consideration for his act being the later deed and
mortgage given by Mrs. Heyl. On these facts, judgment was given for
the plaintiff conditioned upon his paying to the defendant $15,700,
without interest, less $600 counsel fees and costs. The plaintiff
appealed, and the supreme court of the territory gave the plaintiff
an unconditional judgment on the ground that
Page 217 U. S. 501
the defendant's conduct was voluntary, in pursuance of his
fraudulent scheme, and that he had no claim as against Nugent to be
relieved from the consequences of a collateral act. It was thought
that the debt from Mrs. Heyl to Stoffela was a matter with which
Nugent, in spite of his covenant to pay it, had no concern, the
only question being the relative validity of the plaintiff's and
defendant's titles. The defendant appealed to this Court.
We are of opinion that the judgment appealed from was wrong, and
that the judgment of the court of first instance should be
affirmed. It is true that the defendant acted fraudulently, and
knew what he was about. But a man, by committing a fraud, does not
become an outlaw and
caput lupinum. National Bank
& Loan Co. v. Petrie, 189 U. S. 423,
189 U. S. 425.
He may have no standing to rescind his transaction, but when it is
rescinded by one who has the right to do so, the courts will
endeavor to do substantial justice so far as is consistent with
adherence to law.
See Pullman's Palace Car Co. v. Central
Transportation Co., 171 U. S. 138,
171 U. S. 150.
If Nugent is allowed to have the land free of all charge, and the
defendant's claim is extinguished, Nugent gets much more than he
bargained for, and the defendant is deprived of his equitable
interest in Nugent's covenant to pay the mortgage debt (
Johns
v. Wilson, 180 U. S. 440),
and is made to lose a large sum rightly due to him, not from any
necessity of justice, but simply because he has acted badly, and
therefore any treatment is good enough for him. It is said that the
discharge of the old mortgages was a collateral matter with which
Nugent had no concern. If that were true, still justice might
forbid Nugent to rely upon it. But it is not correct. The discharge
and the new deeds, although different instruments, were parts of
one transaction. Each was consideration for the other. As the
plaintiff elects to do away with the consideration for the
discharge, he must be taken to elect also to give up the discharge
-- or, to put it in another way, he must restore the defendant to
the condition in which he stood before the rescinded
Page 217 U. S. 502
deeds were made. The defendant's rights were cut down at least
sufficiently by the trial court.
Judgment reversed, with directions to affirm the judgment of
the district court.