People's National Bank v. Loeffert

Opinion by

Mb. Justice Fell,

Briefly stated, the facts upon which the decree is based as found by the court are these: In 1896 two of the defendants, John and George LoeiTert, were in the planing mill business as partners. They were then and had been for several years irretrievably insolvent, and had carried on their business with money fraudulently obtained by false statements as to their financial condition. The third defendant, Albert LoeiTert, was the superintendent of their mill. He knew of their financial condition, and actively co-operated with them in secreting their property preparatory to a dishonest failure. In pursuance of the conspiracy formed, houses were built upon lots before owned by Albert or procured, by him for the purpose with his own money. The lumber and mill work were furnished directly by the firm, and they paid for a part at least of the other materials and for the labor, with the intent thus to secrete their property from their creditors. No debt was created between the parties by the transaction; it was not intended that Albeit should pay for the materials furnished by the firm or repay the money they had expended in the construction of the houses. It was a scheme into which all three entered to put the property of the firm beyond the reach of its creditors. This finding seems to be fully sustained by the testimony.

The plaintiffs are judgment creditors of the firm, and one of the prayers of their bill was for a decree that their judgment be declared a lien on the real estate on which improvements had been made to the extent to which their debtor’s property had become merged in and a part of the realty. This prayer was granted.

The general jurisdiction of courts of equity to grant relief on the ground of fraud has been freely exercised to defeat the conveyance of property by insolvent debtors in fraud of creditors in cases where the law furnishes no adequate remedy. It has been exercised in numerous cases where a debtor, with intent to defraud his creditors, has conveyed his land directly to another, or has purchased land or paid part of the consideration for land purchased in the name of another, or has made improvements on the land of another, as well as for the removal of fraudulent liens and incumbrances. Where the estate or interest of the debtor has been placed beyond the reach of the ordinary process of execution, he has been held to have an equitable interest which will be made subject' to his debts. Although none of our cases are directly in point, the principle stated has been recognized in Suydam v. Northwestern Ins. Co., 51 Pa. 394, Barto’s Appeal, 55 Pa. 386, and Fowler’s Appeal, 87 Pa. 449. In Wait on Fraudulent Conveyances and Creditors’ Bills, section 26, it is said : “ An extreme illustration of the disposition of courts to favor creditors is the familiar and salutary rule that improvements placed by the debtor upon the real property of another, acting in concert with Mm, and to defraud creditors, •can be followed, and the realty charged in favor of the creditors of the debtor with the value of such improvements.” And in Bump on Fraudulent Conveyances, page 242: “ If a debtor uses his personal property upon the real estate of another, with the knowledge and consent of the owner, so that it becomes a part of such realty, for the purpose of defrauding his creditors and preventing them from obtaining satisfaction of their demands, they may still follow the property into the hands of the •owner of the premises thus -benefited, and fasten their' claims upon such premises to the extent of the debtor’s property so appropriated. If a debt, however, has been created between the parties, the creditors can only have the debt appropriated to the satisfaction of their demands; but if no debt has been created, the appropriate remedy is to fasten their claims .upon the real estate to the extent of the debtor’s property thus made part of the realty.” Among the many cases which support this proposition are Isham v. Schafer, 60 Barb. 317; Lynde v. McGregor, 95 Mass. 182; Dietz v. Atwood, 19 Ill. App. 96; Foster v. Knowles, 42 N. J. Eq. 226.

: As the debtors had no interest in the land which their personal property went to improve, a decree making a judgment against them a lien upon the land does not seem regular. If they had conveyed the land or taken title in the name of another a reconveyance might have been ordered or the conveyance set aside and their judgment decreed to bo a lien. This would have made a judgment against them a lien on their own property which they had fraudulently concealed. A decree in this case ascertaining the amount of the debtor’s property which had become merged in the real estate, and awarding a lien for the amount, would be more logical and more in harmony with chancery practice than the one made, and it would as effectually secure the rights of the plaintiffs. Such a lien would be by virtue of the decree, and the anomaly of making a judgment against one person a lien on the property of another would be avoided. The same result has been effected by this decree. A sale has been made under it, and the interests of purchasers are now to be considered. While not approving the form of the decree, we are not disposed to modify or set it aside, as it does substantial justice. The plaintiffs might have asked for more; while they are content with what they got, the defendants have no ground for complaint.

The objection that the plaintiffs did not allege that they had exhausted their legal rights against the defendants appears to have been first made on the argument in this Court. Whatever force there might have been in the objection if made at the proper time and in a proper manner, it cannot be considered now. The motion at the hearing to dismiss the bill for the reason that there was an adequate remedy at law was not supported on the ground that the bill was defective, and the defects now alleged were not brought to the attention of the court at any time. The court had general jurisdiction of the subject-matter, and it was competent for it to grant the relief sought, and it is now too late to object to defects in the bill of this character. “ . . . . An objection on the ground of jurisdiction must be taken either by demurrer or plea before answer, otherwise the court will entertain the suit, although the defendant may object to it at the hearing, unless it is a case in which no circumstances whatever can give the court jurisdiction:” Daniell’s Chancery Practice and Pleading, p. 631.

The decree is affirmed at the cost of the appellants.