Miller v. Wroton

I concur in the opinion of Mr. Justice Gary that the deed from Charles L. Wroton to his wife, Alice A. Wroton, was fraudulent and should be set aside. The further holding, however, that there was testimony tending to show that Wroton and his wife made an agreement that she should have a claim or lien on the land, constituting an equitable mortgage, it seems clear to me, has no foundation in either the pleadings or the evidence.

The action was brought by the trustee in bankruptcy of Wroton to set aside, as a fraud on creditors, a deed made by him to his wife and children on 15th December, 1890. The defendants, Wroton and Mrs. Wroton, in their answer deny the fraud and rely entirely on the validity of the deed as a conveyance of the land. On the trial of the issue of fraud or good faith Wroton and his wife, in support of the deed, testified fully as to the consideration. Their testimony, quoted at length in the opinion of Mr. Justice Gary, is not to the effect that Wroton would give his wife a claim or lien on the land to secure her for money loaned; but, on the contrary, that, as he had no security to give, when the title came to him, Wroton would make to Mrs. Wroton and their children an absolute deed to the land, in consideration of the money received from her. That this was what they intended to set up and testify to, as the contract between them is made still clearer by the fact that when Wroton undertook to carry out the alleged agreement he made an absolute deed of conveyance to the land. The Court should not decree an equitable lien or mortgage on the land, nor remand the case for inquiry on that subject when there is nothing in the pleadings or evidence to sustain it. When, therefore, the deed is declared fraudulent and void the claim of Mrs. Wroton and her children is at an end.

But the result would be the same, even if the defendants had set up in answers and proved that there was a verbal agreement between them, in 1893 or 1894, that Mrs. Wroton should have a lien or charge on the land for the payment of the money loaned to Wroton. There is no evidence whatever that the trustee in bankruptcy, or any of the creditors of Wroton, had notice of such verbal agreement prior to the commencement of this action by the trustee for the benefit of creditors. It is true, there is testimony that the verbal agreement was made in 1893 or 1894, before the amendment to the recording act, in 1898, giving to creditors and purchasers without liens protection against unrecorded liens and conveyances; and the creditors had not reduced their claims to judgment at the time the petition in bankruptcy was filed. But it is settled, a trustee in bankruptcy is "so far a judgment creditor as to have a proper standing to reach equities beyond the domain of legal remedies." Brandenburg on Bankruptcy, sec 1084;Barker v. Barker, 2 Fed. Cas., 807; Southard v. Benner, 78 N.Y., 434; In re Mentzser, 17 Fed. Cas., 231; In reDuncan, 8 Fed. Cas., 1. Neither the trustee nor the creditors having any notice of the verbal agreement, and the trustee being regarded as a judgment creditor, the case ofKing v. Fraser, 23 S.C. 543, holding that, prior to the amendment of 1898 of the recording act, creditors without liens were not entitled to the protection of that act has no application. Therefore, even if there had been such a verbal agreement for a lien, it could not avail against the trustee.

There is certainly no sanction in reason, and we think none can be found in authority, for holding that a secret verbal agreement to make a mortgage will stand as against subsequent creditors without notice; whereas, if the agreement had been carried into effect, and a mortgage actually made and kept off the record, it would fall. In Herring v.Cannon, 21 S.C. 212, 219, the Court has used this explicit language in declaring such a lien cannot stand against subsequent creditors and purchasers: "Upon the whole, considering the time and occasion of the passage of the act of 1845, the state of the law, then recently announced in the case of Bennett v. Sims, and the policy of our law as to registry, as well as its express terms and the adjudications under it, we must conclude that it was intended to embrace, such conditional sales as the one in this case, and in that way to cut up, root and branch, all secret liens, whether written or verbal, in respect to the rights of subsequent creditors and purchasers for valuable consideration without notice."

The fraudulent deed cannot be valid to the extent of the money paid by Mrs. Wroton under the alleged verbal agreement, because such agreement, as we have seen, was never a lien on the land. This fact, that it was not a lien, distinguishes this case from Smith v.Pate, 3 S.C. 204; Arnold v. House, 12 S.C. 600; and Brown v. Newell, 64 S.C. 27, 40 S.E., 1032. In the first of these cases a judgment had been taken for the full amount of the value of the property sold, estimated in Confederate money, instead of the real value of the property in good money. The judgment debtor was guilty of fraud, but the creditor was not, and the Court allowed the judgment to stand for the real sum due. InArnold v. House a valid and bona fide judgment, while it was still in force, had been fraudulently renewed for more than was due, and the judgment was held valid to the extent of the amount due on the original judgment; the Court saying: "It does not follow that an improper use of a valid security destroys the proper right under the security itself. The defect must exist in the security, which is impaired by the fraudulent purpose or intent entering into the elements of the contract." The same rule was applied in Brown v. Newell, where a valid andbona fide mortgage had entered into a fraudulent mortgage. From this statement it is manifest these cases afford no authority for allowing this fraudulent deed to be set up as an equitable mortgage, for to do so would be to give effect to a verbal agreement to defeat a subsequent judgment creditor without notice.

For these reasons I think the judgment of the Court should be reversed; that the deed from Charles L. Wroton to his wife, Alice A. Wroton, Alice A. Wroton, Jr., Constance L. Wroton, and Butler A. Wroton, should be set aside as fraudulent and the cause remanded to the Circuit Court; that the tract of land described in the complaint may be subjected to the payment of the debts of Charles L. Wroton, and for such other proceedings as may be necessary in the premises.

MR. JUSTICE JONES concurs in judgment of reversal, asproposed in the opinion of MR. JUSTICE WOODS, for reasonstherein stated.