advances nothing, and loses nothing by the proceeding. That is, the creditor had no right, under the circumstances, to levy on the goods in question; and the mere sale had therefore conferred no title upon him.1 A mere attaching creditor is not regarded as a purchaser for value anywhere. He parts with nothing in exchange for the property, nor does he take it in satisfaction of any debt. The property is merely seized for the purpose of having it afterward so appropriated. The attaching creditor, by his attachment, obtains but a lien. It is a well-settled rule, at least in equity, that the general assignees of a bankrupt take his estate subject to every equitable claim existing against it in favor of third persons; and so it is with judgment creditors in regard to the lien of their judgment.2 But if the property attached be afterwards sold under the levy, and the creditor become purchaser, paying cash or giving a valid security for payment, he will be a purchaser for value, even under the New York rule. Further one who claims against a prior donee or creditor as a purchaser for value must prove a fair consideration, not necessarily equal to the full value of the property, but a price paid which does not cause surprise or warrant a suspicion of fraud or contrivance on the part of the purchaser. But if the price paid be grossly below the value of the property, he will not be regarded as a purchaser for value against a creditor, though in fact his purchase was made without knowledge of any fraudulent intent on the part of the vendor.4 Indeed if any interest pertaining to the res remain in the 1 Devoe v. Brandt, 53 N. Y. 462. This was quite clear for the further reason that there was evidence that the creditor had notice of his debtor's fraud. 2 Schweizer v. Tracy, 76 Ill. 345, 351; Ex parte Howe, 1 Paige, 125; Gibson v. Warden, 14 Wall. 249; Tousley v. Tous ley, 5 Ohio St. 78; Nathan v. Giles, 5 Taunt. 558. See McLaughlin v. Shepherd, 32 Maine, 143. 3 Worthy v. Caddell, 76 N. Car. 82; Fullenwider v. Roberts, 4 Dev. & B. 278. 4 Ib. intermediate fraudulent vendor of property, it seems that the original vendor can follow the property into the hands of a bona fide purchaser for value to the extent of such interest. That is, he can sue upon the rights of the purchaser's vendor, and recover to the extent of such rights. But in the absence of trust or agency, this right of the intermediate vendor must, it should seem, be in the nature of a lien upon the property, and not a mere right of action for the breach of a contract; since the original defrauded owner would not be a party to the contract. If the fraud practised on the owner of the property be of such a character as to prevent the passing of a title to the supposed vendee, the latter of course can convey no title to a subsequent purchaser, though the purchase be made without notice and for value. Thus where under pretence that an instrument was a deed of covenant to procure title-deeds, a solicitor obtained from his client a mortgage of property to secure the payment of an alleged debt not shown to exist, the deed thus procured was held to be void, not merely against the solicitor, but also against an assignee for value from him without notice of the fraud. And it is held that if the fraudulent purchaser of goods does not obtain a delivery of them under the contract, but subsequently acquires possession of them through fraud and misrepresentation, he cannot convey a good title to them as against the owner, even to a bona fide purchaser for value. Again one who buys property from another who acquired the title by fraud must, in order to protect himself in his purchase, have been ignorant of any of the facts constituting the fraud, not only at the time of his purchase, but also at the time of paying the purchase price.5 To constitute one a pur 1 See Justh v. National Bank, 56 N. Y. 478. 2 Justh v. National Bank, 56 N. Y. 483, 484. See also Pennell v. Deffell, 4 De G., M. & G. 372. 8 Vorley v. Cooke, 1 Giff. 230. See also ante, pp. 130, 157. 388. * Dean v. Yates, 22 Ohio St. 5 Scott v. Umbarger, 41 Cal. 410; chaser without notice, he should have paid the purchase-money in whole or in part1 before notice. Hence a person receiving notice after having contracted for the purchase of land, but before the delivery of the deed or adjustment of the consideration, is not a purchaser without notice. But notice to a purchaser after purchase completed does not affect him.4 An assignee who takes in trust for others is not a purchaser for value in the technical sense, and some courts hold that an assignee purchasing even in his own right, as e. g. an assignee of a mortgage purchased for himself in ordinary course, is not to be treated as one having the rights of a purchaser for value. In that view of the law the assignee of the mortgage takes subject to equities, even though he purchased without notice. But a contrary and, it is believed, a sounder rule prevails in other courts. In the absence of fraud a conveyance by the party who appears . . . to be the owner of the mortgage should be sufficient to protect a purchaser who has no actual or constructive notice of title in any other.' Upon what solid ground can a distinction be maintained between the situation of one who purchases an unincumbered estate for a valuable consideration, without notice, from a vendor whose title was acquired by fraud, and that of one who so purchases a mortgage? It signifies nothing that the latter, in strictness, is an assignee of the mortgage. To protect the assignee is no more to make mortgages negotiable than other property. Blanchard v. Ely, 12 Mich. 339; War- Donally, 3 Hen. & M. 316; Jewett v. 1 Hardin v. Harrington, 11 Bush, 367. See Pickett v. Baum, 29 Barb. 505; 2 Story, Equity, § 1502. 2 Paul v. Fulton, 25 Mo. 156; Vattier v. Hude, 7 Peters, 252; Doswell v. Buchanan, 3 Leigh, 365; Dellard v. Crocker, 1 Speer, Eq. 20; Bash v. Bash, 3 Strobh. Eq. 131; Kyle v. Tait, 6 Gratt. 44; Cole v. Scott, 2 Wash. 141. 8 Prescott v. Hawkins, 16 N. H. 122; Blair v. Owles, 1 Munf. 38; Hoover v. 4 Low v. Blinco, 10 Bush, 331. 5 Conover v. Van Mater, 3 C. E. Green, 481. 6 See Welch v. Priest, 8 Allen, 165; Hulsman v. Whitman, 109 Mass. 411, 413; Merchants' Ins. Co. v. Abbott, 131 Mass. 398, 400; Taylor v. Blakelock, 32 Ch. D. 560, C. A. 7 Welch v. Priest, supra, Hoar, J. Again to be a purchaser of land without notice, it is held that the party must have acquired the legal title; a purchaser of an equitable title is deemed not within the protection,1 though there is much to be said in favor of a different rule.2 Nor is one who holds title under a quit-claim deed regarded as a bona fide purchaser without notice.3 § 7. INNOCENT MISREPRESENTATION: GENERAL DOCTRINE. One who brings about a sale or a contract by misrepresentation commits no fraud, if his representation was, when made, innocent in the ordinary sense of being free from moral wrong, i. e. if it was honestly believed to be true under circumstances permitting honest belief. Hence no action for damages can be brought however grievously the party dealt with may have suffered. But when the fact that the representation was false becomes known to the one who made it, he should then, as an honest man, be willing to permit the transaction to be undone if possible, or if not, to relinquish any claim to maintain his advantage upon offer of reciprocal relinquishment of any benefit received by the injured party. To refuse to do this would make him guilty, not of fraud, but of constructive fraud; the significance of which lies in the fact that the law would not permit him to maintain his advantage under the transaction as matter of right. If the wrong-doer sue upon a contract thus obtained, the defendant may defend by alleging (1) the misrepresentation and (2), if he received anything of value in the transaction, that he has offered to restore the same to the plaintiff; or he may show the misrepresentation in reduction of the value of the 1 Wailes v. Cooper, 24 Miss. 208. 2 See an article by Professor Ames in 1 Harvard Law Rev. 1 (April, 1887). 3 Watson v. Phelps, 40 Iowa, 482; May v. Le Clafra, 11 Wall. 217; Oliver v. Pratt, 3 How. 333; Boon v. Chiles, 10 Peters, 177; Vattier v. Hinde, 7 note. See ante, pp. 5, note 3, 11, and contract, retaining what he has received.1 In either case the wrong-doer is deprived of any advantage, though not liable to any action for damages. If on the other hand the party who made the misrepresentation, having received some security for the payment to be made, such as a negotiable promissory note, which he might turn to the hurt of him who gave it, should not sue, the injured party may bring an action in equity to require him to deliver up the security. And the same would be true if the defendant had received and refused to return, upon proper demand, any piece of property, assuming that the plaintiff offered return of what he may have received. But that is all. Whatever then the course of the law in the particular case, the wrong-doer is treated as guilty of something less than fraud. Such is the general doctrine concerning innocent misrepresentation. We now call attention to the application of the doctrine to the special subject of rescission; though it must be understood that contracts may be rescinded for other causes than misrepresentation. The case of transactions between parties to fiduciary and confidential relations, already considered, affords a striking illustration; and there are cases too of conduct subsequent, not consisting in misrepresentation, for which rescission may be granted. It may also be remarked that the subject of misrepresentation as such is reserved for consideration in the following chapter relating to Deception. § 8. INNOCENT MISREPRESENTATION: RESCISSION.5 a. The Rule of Equity: Tendency at Law. The general rule of equity is that any contract, of however solemn character, may within certain limits be rescinded for 1 See the chapter on Rescission, ante, Rubber Tel. Co., L. R. 10 Ch. 515, post, pp. 73 et seq.; infra, p. 420. pp. 417-419. 2 Ante, pp. 46, 84. 5 As to procedure in rescission see 3 Ante, pp. 76, 77; infra, Conse- ante, pp. 73 et seq. quences of Rescission,' p. 431. 6 As to jurisdiction in rescission of 4 See e. g. Panama Tel. Co. v. India specialties see ante, pp. 53-56. |