Smith v. Espy , 9 N.J. Eq. 160 ( 1852 )

The Chancellor.

The only witness on behalf of the complainant as to the allegations of fraud contained in the bill, is E. He details a conversation which took place some time after the execution of the deed, between himself and one of the defendants, Henry Freas, Jr., the grantor in the alleged fraudulent conveyance. This evidence was objected to when taken before the master. As a general rule, what the grantor says to a third person, not in the presence of the grantee, either before or after the execution of the deed, is not legal evidence against the grantee, and cannot be used to invalidate his title. At the time of this conversation the deed was on record, but there had been no delivery of it to Elizabeth Espy; and it is admitted that, at the time, she knew nothing of the deed — there had been no negotiation between herself and Freas in reference to it, and she was a stranger to the whole transaction. At that time she had no rights which could be impaired by any thing Freas could say. The conversation was respecting a passed transaction, with which, it is admitted, Mrs. Espy had had nothing to do. It was not in reference to any contemplated negotiation which was to take place between Ereas and Mrs. Espy. In this view, the evidence is not objectionable. But did I consider that this evidence operated to the disadvantage of Mrs. Espy’s rights, I should admit it with great reluctance. If Mr. E. had been compelled, by the opposite party, to give this evidence, it would be free from animadversion. But how is the fact? Freas makes this deed for the avowed purpose of defrauding a creditor. The attorney and counselor-at-law, who is made a defendant in the cause, for the purpose of discovery, admits he prepared the deed, and aided and abetted the debtor in his unlawful purpose. Some difficulty occurring between counsel and client, another counsel is selected, to whom the debtor reveals the transaction. By the aid of the latter counsel, the creditor is brought to a compromise. Subsequently, the debtor becomes further indebted to this counsel, and then, when this fraudulent deed is set up to defeat his claim, he volunteers to detail a confidential communication, made to him by his client.

But this evidence, as far as the fraudulent purpose of Ereas is concerned in executing the deed, does not vary the case from the one presented by the pleadings.

The answers of Henry Ereas, Jr., and of Elizabeth Espy, admit that the deed in question was made and executed at the time, for the purpose of placing the property beyond the reach of the guardian of Henry Freas, who had then lately obtained a decree or judgment against him.

It is not alleged, in the bill, that when the deed was executed, Henry Freas, Jr., had any other creditor than his guardian, although it is alleged that he declared he executed the deed for the purpose of defrauding his guardian, and other creditors. The bill does not show that the judgment creditors, under whom the complainant claims, were creditors at that time, or that the debts were contracted, in any manner, on the faith of Henry Ereas being the owner of the property. It appears, however, in the case, that the debt to Mr. A. was contracted prior to the execution of the deed and the one to Mr. E., subsequent thereto. It does not appear that Freas had any creditors at the time the deed was executed, except his guardian and Mr. A., or any subsequent creditors, except Mr. E.

A deed, fraudulent as to judgment creditors, may be impeached by a purchaser holding a conveyance under that judgment; but such purchaser stands in no better situation than the judgment creditor filing a bill to avoid the alleged fraudulent deed. To ascertain, therefore, the rights of the complainant, and whether he is entitled to the relief sought by his bill, we must examine into, and ascertain the rights of the judgment creditor under whom he claims.

A deed executed with intent to delay, hinder, or defraud creditors and others of their just and lawful actions, suits, and debts, shall, in the language of the statute, “ be deemed and taken to be clearly and utterly void, frustrate, and of no effect.” But such deeds are good as between the parties, and as against all other persons whose actions, suits, debts, accounts, damages, penalties, forfeitures, and demands have not been, or may not be in any wise disturbed, hindered, or defeated by them.

Such a deed may be avoided, not only by existing, but by subsequent creditors. This was controverted on the argument, but the principle is established by numerous authorities. Where a distinction has been made between existing and subsequent creditors, it has been where the conveyance was not actually fraudulent, but the fraud was a legal inference from the debtor’s embarrassment at the time, or from other circumstances. Whether the weight of authority in such cases, favors this distinction, may be questioned, but it is well settled that in cases of actual fraud, the distinction does not exist. See the numerous cases cited in 1 Am. Lead. Cas. 64, 65, and 1 Story’s Eq. 361.

The judgment under which the complainant claims was in favor of A. and E. It is a judgment on attachment for the sum of one hundred and sixteen dollars and eighty-six cents. The debt of A. was thirteen dollars and twenty-six cents, and was contracted prior to the deed In question. E.’s debt was fifty dollars and ninety cents, and was contracted October 9th, 1848, more than two years after the date of the deed.

Could A. question this conveyance as fraudulent against himself, as a creditor of Henry Freas, Jr. ?

It appears that the consideration of A.’s debt was for services as a lawyer, rendered by him to Henry Freas, Jr., in defending the claim prosecuted against Freas by his guardian, and to defeat which claim the conveyance was executed; that A., as Freas’ counsel, drew the deed for this fraudulent purpose, and, as a master of this court, took the acknowledgment.

Henry Freas, in his answer, says that he went with one William Fries to consult Mr. A.; that in that interview William suggested that a conveyance should be made to some one, in order to defeat the claim made against Henry by his guardian. A., as attorney and counsel, advised this should be done, and that the deed should be antedated so as to make it appear prior in point of time to a judgment or decree, which had been, or would shortly be obtained in favor of the guardian.

A., in his answer, admits that he drew and took the acknowledgment of the deed, and that Freas told him at the time he meant to cheat his guardian and other creditors.

Upon what principle of equity can I set aside this conveyance in favor of A.’s debt ?

Equity and the common law abhor the fraud, and the statute law has given its sanction and authority to the court in discountenancing such conveyances. But to set aside such a deed for fraud in favor of one who advised and counseled in its execution, would be in violation of every principle upon which this court administers equity.

Freas executed the deed to defraud his creditor. A. counseled and aided Freas in accomplishing his purposes, and it would be inequitable that A. should be permitted to appropriate to himself the advantages of the conveyance, as it, would be to allow Freas himself to do so.

The complainant, therefore, as far as he claims under A. as a judgment creditor, is not entitled to the interference of the court. It remains to be seen whether he stands in any better situation claiming under E.

As has been already remarked, E. was not a creditor at the time of the execution of the deed. His debt was not contracted on the faith of Freas being the owner of this property. But this fact, as was before observed, will not prevent him, or the complainant claiming under him, from calling in question this conveyance and impeaching it, on the ground of fraud. Was it a question between A. and Freas, or a person claiming under Freas, with knowledge of the fraud, or whose conveyance was in any way tainted with it, the case might be free from difficulty. Whether A. or the person claiming under him is entitled to relief, must depend upon the nature of the title and the respective equities of the complainant and defendants.

What is the situation of E., as respects the alleged fraudulent transaction, and how do his equities compare with those of Mrs. Espy, whose rights it is sought, by this bill, to supersede ?

After the execution of the deed, A. turned his client over to E., and E. was retained as counsel to defend Freas against the claim which his guardian was prosecuting against him. Freas informed E. of the preparation he had made to defraud his guardian, and explained to him the manner and the purpose for which the deed had been executed. E. undertook the cause, and the result was that instead of the guardian’s recovering his money against Freas, a compromise was effected, upon his guardian’s paying Freas eighty dollars and also the costs of the suit, being eighty dollars more. What influence the fact of Freas having disposed of his property had in bringing the guardian to terms, we have no means of ascertaining.

Nearly a year after this transaction was closed, Freas became indebted to E. about fifty dollars for other professional services. Shortly after, A. issues the attachment, and E. comes in as a creditor under the same. No other creditor applies. The complainant holds under this judgment in attachment. E., as solicitor, files the bill in this suit, and A. conducts the suit as counsel for the complainant. A. is also made a,defendant to the bill, as a particeps criminis in the fraud. He answers and discloses the transaction, and admits the fraud.

All these circumstances, taken in connection, do not place E., as a judgment creditor, in a very favorable position to ask the aid of this court in setting aside the alleged fraudulent conveyance for his benefit. The complainant stands in no better relation claiming under him.

If this was the whole case, I should very much doubt the propriety of this court interfering. But taking into consideration the circumstances under which Mrs. Espy holds her title, I am satisfied that the complainant ought to be left to his remedy at law.

Mrs. Espy denies all participation in the alleged fraud. She had no knowledge of the execution of the deed. It was, executed and recorded without any consultation with her, and she was ignorant of its existence until the following March, ten months after its execution. Her denial is not questioned, and she stands before the court with a clear conscience in reference to the transaction. The charge in the bill, that she declared to A. that she meant to hold the property to prevent Freas’ creditors from getting his land, and for the benefit of Freas’ children, is denied by her, and there is no proof to sustain the allegation.

The answer of the defendant A. is no evidence of the fact.

At the time of the execution of the deed, Henry Freas was indebted to Elizabeth Espy in the sum of ninety dollars, for which she held Freas’ note, bearing date more than eight months prior to the date of the conveyance.

On or about the 11th of March, 1847, which was more than eighteen months prior to the time when E.’s debt was contracted — at a time when Freas had no existing creditors, and after his settlement with his guardian — Freas informed Mrs. Espy of the execution of the deed. He told her the purpose for which it had been executed, but informed her that the difficulty with his guardian had been adjusted, and offered to deliver to her the deed, if she would pay him sixty dollars, the difference between what he owed her and the consideration mentioned in the deed. To this she assented-; paid him the sixty dollars and took the deed.

It is insisted on behalf of the complainant — First. That it is not proved that Mrs. Espy gave the consideration alleged, and that it is necessary to support this part of her answer by proof.

The principle contended for is a familiar one, and required no reference to authorities to support it; that any allegation of the answer which is not directly responsive to the bill, but sets forth matters in avoidance or bar, is denied by the general replication, and must be proved aliunde.

The question is, whether this part of Mrs. Espy’s answer is responsive to the bill, in such a view as will make it evidence for her.

The bill charges that Freas executed the deed to defraud a certain creditor, that he did not deliver it to Mrs. Espy, and that she paid no consideration for it. Mrs. Espy admits this, but sets up a transaction which occurred some eighteen months afterwards, in avoidance of the consequences which must necessarily follow from such admissions. An avoidance is something dehors that which is admitted, and subsequent thereto. If a defendant admits the receipt of a certain sum of money on a particular day, and avers that he paid it over, that may discharge him; but if he alleges he paid it over at a subsequent time, or made an appropriation of it, by direction of the person for whom he received it, he must prove such allegations. Thomson v. Lambe, 7 Ves. 58; Hart v. Teneyck, 2 J. C. R. 92. It is true, one of the interrogatories put by the complainant is, whether any consideration was paid by Mrs. Espy for the deed ; but most certainly, this does not give the defendant a latitude of setting up and explaining a negotiation in reference to the consideration and delivery of the deed, which occurred some eighteen months afterwards. The answer, therefore, of Mrs. Espy, cannot be taken as evidence of the consideration which passed between herself and Freas, or as an explanation of a transaction some months after the execution of the deed.

But 1 am perfectly satisfied with the testimony of Elizabeth Espy, the grand-daughter, who proves the whole transaction as it is alleged in the answer. Her lestimony was questioned only on the ground of her extreme youth. She was fifteen years old when examined. Her testimony is clear, and is given, as far as we can judge of evidence taken by commission, as this was, with much intelligence. Her evidence bears on the face of it the impress of truth. She states many facts, to which others wore witnesses, as well as herself, and some of which could have been impeached, if not accurately detailed by her. She shows one important fact, the contrary of which is alleged in the bill, and that is the pecuniary ability of Mrs. Espy to pay the consideration money. If this was untrue, it could easily have been disproved, for she states the source from which Mrs. Espy received her means, each week, in the city of Philadelphia. Her testimony proves the transaction as stated in the answers of Mrs. Espy and Henry Freas, Jr., and there is no circumstance in the whole case, that leads me to doubt that we have the truth of the whole transaction between Mrs. Espy and Henry Freas, Jr., in their answers. There is a frankness in the answers, corresponding with the case as it has been developed, which commends, itself to the consideration of the court.

But the complainant further insists that, admitting Mrs. Espy’s allegations to be true as to the delivery of the deed to her, and as to her payment of the consideration money, the deed having been fraudulently executed by Freas, and put on record, no subsequent arrangement or negotiation with regard to ii, between Mrs. Espy and Freas, could purge it of the original fraud. If Mrs. Espy had been a partaker in the iniquity of the transaction, the position would be correct; and a court might well refuse to listen to any explanation of a subsequent transaction between the parties to the fraud, as an antidote to the poison infused into the original transaction. But when she became, with her consent, a party to this deed, it was with no intention of defrauding any one, and it was at a time when there was no person who could be injured by her accepting it. Any improper use to be made of the deed, then or thereafter, was not contemplated by either Ereas or herself. I cannot see that Mrs. Espy has done anything which does not comport with fairness and honest dealing.

My only doubt about the case has been whether I ought not, on account of the smallness of the consideration given by Mrs. Espy, to allow the complainant to take the property, upon paying Mrs. Espy what she paid for it, with the interest. I would do so if the complainant claimed under judgment creditors, standing in a position entirely aloof from the fraudulent transaction. But, on reflection, I am satisfied to dismiss the bill, without costs to be paid by either party to the other.

The view I have taken of the case is no hardship upon the complainant. He purchased the property on speculation. The deed from Ereas to Mrs. Espy was on record, and the complainant knew that the title he obtained would be of no value, unless he could successfully impeach the deed for fraud. The whole case was before him, and he bought with his eyes open.