Birdsall v. Welch ( 1868 )

Mr. Justice Wylie

delivered the opinion of the Court:

This professes to be a creditor’s bill, filed by Birdsall, to set aside as void for fraud two deeds made by the defendant Welch, and to subject the property thereby conveyed to sale, under decree of this Court, for the common benefit of Welch’s creditors; or, in any event, to have the property sold and the proceeds afterwards distributed under the directions of the Court, whether the deeds be fraudulent or not. Both these deeds bear date the 2d .of December, 1867. One was a deed of trust to It. S. Davis, assigning all the household furniture and stock in trade belonging to Welch to secure'certain debts due by him to the defendant, amounting to more than $3,000.

The other was a deed of absolute conveyance from Welch to Talmadge for a house and lot in this city for the consideration of $10,000.

At the time these deeds were executed there was an action pending at law in this Court, brought by Birdsall against Welch, claiming damages for false imprisonment, which came on to be tried just two days after the execution and delivery of the deeds, and which resulted in a verdict and judgment in favor of the plaintiff, for $875 and costs.

The bill charges that both the deeds were made without consideration, and with the fraudulent purpose on the part of Welch and Talmadge to defeat the collection of the judgment which they expected would soon be entered in the said action for false imprisonment.

The answers of these defendants show that Talmadge was a creditor of Welch at the time for the full amount of the debts secured by the deed of trust to Davis and more, and aver that the deed was given in good faith to secure those debts, and with no intent to delay, hinder or defraud Birdsall, although Talmadge says he was aware at the time it was given of the pendency of the action against Welch.

Welch further alleges, in his answer, that he is the holder of BirdsalFs promissory note for a valuable consideration, amounting to $433, which he prays to have set off against BirdsalFs judgment.

He also claitas, by way of plea, that the question of fraud in the deed of trust to Davis was determined in a trial at law in this Court in an action of replevin, in which Davis was plaintiff and the complainant, Birdsall, was the substantial defendant.

The proceedings in that action are also referred to by complainant and made an exhibit to his bill.

The record of that case shows that, after Birdsall had obtained his judgment against Welch, he issued an execution for its collection ; that his counsel indemnified the marshal and had a levy made on the property which had been assigned to Davis as trustee, treating Davis’ deed as void; that Davis replevined the goods; that the cause was tried by jury, and a verdict and judgment obtained in his favor, nominally against the marshal, but substantially against Birdsall, who was the plaintiff in the execution. As to the absolute deed from Welch to Talmadge, it is shown by the answer that Talmadge was induced to make the purchase in order to get Welch to give him the security for his deed of trust to Davis, and that both deeds were the result of the same negotiation.

It is further shown by the answers that at the time of the sale the real property was incumbered to the amount of $7,400 ; that Talmadge undertook to pay off the incumbrances and gave his promissory notes to Welch for the balance ($2,600) which Welch immediately thereafter transferred to Mayo & Co., of Richmond, towards satisfaction of a debt greater than the amount which he owed to that firm. These notes were secured by a deed of trust given by Talmadge upon the property.

This cause was set down for hearing by the complainant on bill and answers, and, there was necessarily no testimony taken on either side, but as we are to determine the controversy solely on the pleadings, it is important that we should consider in the outset the effect of setting down a cause for hearing on bill and answer'.

This is always the act of the complainant in a cause; it cannot be done by a defendant. Its effect is to deprive the defendant of the opportunity to establish the defense by testimony. If'complainant intends to deny the truth of the defendant’s answer, it is his duty to do so by filing a replication, which would put the cause at issue, and then defendant has the right to make out his case by evidence.

By setting down the cause for hearing on bill and answer, complainant is taken to admit the truth of the whole of defendant’s answer, not only of the facts stated in direct response to the bill, but also all those set up by way of affirmative defense. Otherwise, it would always be in the power of the complainant to deprive the defendant of the opportunity of taking evidence to establish the defense set up in his answer. This doctrine is perfectly reasonable, and fully settled by all the authorities. See Cooper’s Eq. Pl., 328, 329, and Story Eq. Pl., ch. 19, sec. 877.

The answers in this case must, therefore, be taken to be true, not only so far as they are responsive to the bill, but also as to all their new and affirmative statements of facts.

Whether it be on a trial by jury or in chancery, fraud in fact must be made out affirmatively by the party who makes the charge.

In the present case, we find nothing on the face of the transaction which amounts to fraud in law. If there be fraud in the case, it must be found in the motives of the parties to whom or for whose benefit the deeds were made.

Talmadge was a creditor of Welch and -as the answers show, a most meritorious creditor. His claims were part due; the defendant Welch was in failing circumstances. If Birdsall should obtain a judgment to a large amount against Welch, the very property -which in equity and good conscience is shown to have belonged to Talmadge, might be swept away by Birdsall’s execution and Talmadge ruined in fortune. He had a perfect right to secure himself, and it was his duty to do so, promptly and vigilantly. It -was not even a badge of fraud to take security or property beyond the amount of his claim, if that was done in this instance, which is doubtful. In Donns vs. Kissam, 10 How., 108, the Supreme Court reversed a judgment on the ground that the Circuit Court had told the jury that this circumstance was a badge of fraud. It is no badge of fraud, “says the Court,” for a mortgage which is a mere security, to cover more property than will secure the debt due. Any creditor may pay the mortgage debt and proceed against the property, or he may subject it to the payment of his debt by other modes of proceeding.”

Were it true in law that no creditor -could take measures to secure himself from loss by a debtor against whom actions were pending and near trial, because his doing so might de'feat or delay the collection of judgment, for the same reason no judgment creditor ought to be permitted to avail himself of his superior diligence, because to do so would defeat the claims of other creditors who had not been equally diligent. For a judgment is only one form of security, and in itself is not more meritorious than a mortgage or deed of trust; otherwise diligence itself would become a badge of fraud, and so every securty would be void for fraud, except such as might be satisfactory to everybodjL In cases arising under the statute of Elizabeth, Ch. 5, it may be laid down that under almost any circumstances (if the cause be a trial at law) the question of fraud or no fraud is one for the consideration of the jury. So, too, in chancery there are no rules establishing particular circumstances to be indelible badges of fraud, but .the question of bona fides is there also one of fact. (See 1st vol. Smith’s L. Ca. 41.)

In the present case good faith on the part of Talmadge is perfectly reconcilable with all the facts before us, and is solemnly declared by him in his answer under oath as to both transactions, and is admitted by the complainant in his act of setting down the cause for hearing. Whatever may have been the design of Welch, the good faith of Talmadge is enough to sustain these deeds. If there have been good faith and a valuable consideration on the part of the purchase, the deed is valid, notwithstanding there may have been a fraudulent purpose on the part of the grantor. In Astor vs. Wells, 4 Wheat., 517, the Court held1 that the fraudulent purpose of the debtor to cheat his creditors by conveying liis property would not affect one who had purchased the property in good faith.

And in Roberts and Boyd vs. Anderson, 3 John. Ch. R., the same doctrine was laid down by Chancellor Kent while he took occasion to retract an erroneous opinion on the point which he had expressed in another case. “Such a conveyance,” he says, “is supported by the proviso (in the sixth section of the act of 13th Elizabeth) however fraudulent the intention of the grantor might be, and the contrary impression which I had once received on this point from some of the English cases, without at the time adverting to this proviso, and which led me to the dictum in Hildreth vs. Lands (2 Johns. Ch. R.), was properly corrected by Mr. Justice Spencer, when that cause was afterwards before the Court of Errors. (14 Johns., R. 498.)”

As to the real estate, that property was sold for a fair consideration; the purpose to defraud creditors is positively denied in the answer, and we are not at liberty to say in this case that the admitted facts require us to declare that fraud existed in the face of these answers, and with no proof to weaken their effect but with the contrary admissions of the complainant in setting down the cause for hearing on the bill and answers.

Besides the answers show and complainant admits that of the purchase money ($10,000) $7,400 were already liens on the property. They at least are beyond our reach. The residue, $2,600, consisting of the purchaser’s notes, were immediately after the sale transferred to Mayo & Co. towards the payment of their claim against Welch. Mayo & Co. are therefore in equity the owner of the deed of trust which secures these notes, for the assignment of the notes carried with it the deed of trust which secured them. To make a decree annulling that sale would destroy that security. How can we do that when Mayo & Co. are not parties to this suit? They were at the time creditors of Welch quite as meritorious as the complainant. They have, therefore, equal equity in this Court, and besides have a legal advantage in their deed of trust of which we ought not to deprive them.

Although under the Statute 13th Elizabeth, chap. 5, a bona fide purchaser without notice from a fraudulent grantee gets no title by his conveyance, because his grantor’s title was void, yet the rule is different if his purchase be made directly from a fraudulent grantor. In this last case, the proviso to the sixth section saves his conveyance, notwithstanding the fraud of his grantor. This doctrine was laid down by Ch. Kent in Roberts and Boyd vs. Anderson, 3 Johns. Ch. R., 371.

In the case before us Mayo & Co. were bona fide purchasers without notice from Welch himself of the security which he .had reserved on the property in question for the payment of the notes. They are, therefore, protected, even if Welch had been fraudulent in giving them the security.

Nor is the case made better for the complainant by regarding both these transactions as parts of one, for it is not easy to see how one transaction consisting of two parts, both of which are free from fraud, could, become fraudulent when considered together.

But the sale of the real estate to Talmadge was not a fraud in law. If allowed to prove his case he might have shown that it was perfectly honest in purchase, and whatever he might have established by proof this complainant admits to be true.

But to this charge of fraud there is another answer which appears on the face of the bill itself, and is also insisted on in Welch’s answer to the bill. It is that the whole matter has been tried in the action of replevin, and a verdict and judgment therein rendered in favor of the defendant.

The question of fraud in this case is manifestly one of fact, and most proper to be tried by a jury. After complainant had got his judgment for damages against Welch, he issued his execution, indemnified the marshal, and levied on the personal property covered by Davis’ deed. Davis replevied the property, and the cause was tried by jury and a verdict and judgment rendered in favor of Davis. That verdict and judgment settled the question of fraud, and established the deed, and is conclusive against the complainant in this suit as to the personal property. And if the complainant insists that both deeds are parts of one transaction, and the whole must stand or fall together, it is conclusive in favor of the other also.

In Smith vs. McIvor, 9 Wheat., 532, it was held that in all cases of concurrent jurisdiction, the Court which first has possession of the subject must determine it conclusively, and that although courts of equity have concurrent jurisdiction with courts of Jaw in all matters of fraud, yet when the cause has already been tried and determined by a court of law, a court of equity cannot talce cognizance of it, unless there be an addition of some equitable circumstances to give jurisdiction. In such case some defect of testimony or other disability which a court of law cannot remove must be shown as a ground for resorting to a court of equity. See also Bank of U. S. vs. Beverly, 1 Howard, 143.

This complainant is estopped by that verdict and judgment; for although the action of replevin was nominally against the marshal, Birdsall was the substantial party.

The law on this point is plainly stated in 1 Greenleaf’s Evidence, sec. 523, as follows: “But to give full effect to the principle by which parties arc held bound by a judgment, all persons who are represented by the parties and claim under them, or in privity with them, are equally concluded by the same proceedings.” * * * “The ground upon which persons standing in this relation to the litigating party are bound by the proceedings is, that they are identified with him in interest; and wherever this identity is found to exist all are alike concluded.”

We are brought to consider the nature of the decree to bo rendered in this cause.

Laying out of view the effect of the verdict and judgment in the action of replevin, complainant having obtained his judgment and issued his execution before instituting the present suit, and having failed in his effort to collect his money by these means, he had a right to the aid of this Court to set aside the deeds to Davis and Talmadge, if they were fraudulent, and to have the property sold for his own benefit. It was error to put his bill in the form of a creditor’s bill, but that is immaterial. That relief we cannot afford him in this case, for we must take both these deeds to be valid.

He has a right, however, to redeem ^tbe property from the lien of Davis’ deed of trust by paying off the debts which it secures, and then selling the property to reimburse himself for the amount thus^ advanced, as well as to secure payment of his judgment, and if the property assigned to Davis be as valuable as the bill alleges, it will be his interest to do so. If he does not choose to take that risk he may renew his execution, and so retain a lien on the surplus which may remain in Davis’ hands after the debts secured by that deed have been satisfied. But for either of these purposes he has the remedy in his own hands without our aid. We cannot, however, hold those deeds to be valid, and yet decree a sale of the property under this bill.

The sale of the real estate to Talmadge was absolute,-and it is therefore beyond our 'reach. Davis is a trustee who has been charged with no fault in the performance of his, duty, and we cannot, therefore, remove him. It is to be presumed he will sell the property, as required by his deed, and faithfully execute the trust he has assumed.

The bill must therefore be dismissed.

As it regards the set-off claimed by the defendant, a majority of the Court is of opinion that it cannot be allowed in this cause; but the plea is overruled without prejudice to defendant’s right to bring his action at law.

In that opinion I do not concur. I think it a proper defense so far as it goes; its justice has not been denied by the complainant, and, as we have the parties concerned before us, I think we ought to settle their whole controversy, and direct the amount of the set-off to be credited on Birdsall’s judgment.