Case ID: dc_17/html/0108-01.html
Source: Caselaw Access Project
Author: {"author": "Mr. Justice James", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

WILLIAM E. CLARK vs. MARGARET KRAUSE Et Al.
    1. A bill was filed attacking a conveyance from K. to J. as fraudulent upon K.’s creditors. At the hearing upon the merits the bill was dismissed. Shortly afterwards J. conveyed the property to the. wife of K. Thereupon the same creditor filed a new bill, seeking to connect the facts of the first conveyance with those of the second, for the purpose of showing that the Court rendering the decree had been deceived, and that both conveyances were fraudulent as to creditors of K. Held, That the facts and effect of the facts considered in the former suit were res judicata. The Court must assume a good title in J. as against complainant, and could only inquire whether the conveyance to the wife of K. was a mere cover to conceal a sale to him.
    2. It is no fraud upon a creditor to convey property to the debtor’s wife free from the control of her husband, where the latter pays no part of the consideration.
    In Equity.
    No. 9,374.
    Decided October 17,1887.
    The Chief Justice and Justices Hagner and James sitting.
    Appeal by complainant from a decree of Special Term in Equity, dismissing a bill seeking to have certain conveyances declared fraudulent.
    The Pacts are stated in the opinion.
    Messrs. Edwards & Barnard, for complainant:
    Mrs. Krause, being a party to the original bill, and to the deed to Joachim, must be presumed to know the consideration of that deed, and the testimony on which that bill was dismissed; and as a party to the deception, it does not lie in her mouth now to claim title as a bona fide purchaser for value, or as an innocent donee of the property. In any event, equity would only allow her to be protected to the extent of the $500 said to be invested in the property, as against the claim of a creditor, such as the plaintiff, whose money went to keep up the business of her husband, and to support herself and family for years. The recital in the deed, that the consideration is $5,000, is prima facie evidence of that fact; and if this recital is false, it is a badge of fraud, and she was a party to it, as shown by her answer. Bump, Fraud. Conv., 40, 42, 217, 594, 595.
    This deed, on its face, is a deed of bargain and sale, and cannot be converted into a deed of gift, o,r for love and affection, by any admissible evidence. Id., 596-598; Betts vs. Union Bank, 1 Harr. & G., 175-191'; Morse vs. Shattuck, 4 N. H., 229; 1 Greenl. Ev., sec. 285; Richardson vs. Traver, 112 U. S., 431.
    If parol evidence could not be admitted to show that this deed was a gift, then the averment in the answer to that effect is not admissible as evidence. Alex. Ch. Pr., .115.
    Not being allowed to prove a different consideration, or no consideration, as against the recitals in these deeds, the defendant is in law presumed to have bought this property with her husband’s money; and she is estopped in this suit to dispute it. Bump, Fraud. Conv., 313; Seitz vs. Mitchell, 94 U. S., 580; Schouler, Domestic Relations, 188, note; 'Wait, Fraud. Conv., sec. 301.
    The defendant, Mrs. Krause, cannot set this property up as her separate estate, if it came to her indirectly as a gift from her husband, no matter if there was a joint conveyance to Joachim, and he conveyed it back to- her. It is an undisputed fact that the insolvent, husband has always had the benefit of the property, as a business place and residence; and the pretended sales and purchases have resulted in his retaining that benefit. Kaiser vs. Stickney,. 3 Mac A., 118; Winter vs. Walter, 37 Pa., 155; Reeves vs. Webster, 71 Ill., 307; Adams vs. Knowlton, 22 Cal., 283.
    It may be claimed that Joachim should be a party to this suit, if the Court should find it proper to consider this bill as one in the nature of a bill of review of the original suit; but if such claim is made, we submit that he is not a necessary party, because.he has parted with all his alleged interest and title, under his solemn sealed deeds of conveyance; and his grantee, who we say is a party to the original fraud, is the real party now to defend. Wait, Fraud. Conv., secs. 131, 384; Stout vs. Stout, 77 Ind., 537-539; Walter vs. Riehl, 38 Md., 211; Jackman vs. Robinson, 64 Mo., 289; Bump, Fraud. Conv., 549, 550.
    The property being now revested in one of the original fraudulent grantors, the original equity of complainant would attach; and the Court, if now satisfied of fraud in the original transaction from the light of the further action of the parties, is at liberty to disregard its prior finding. Church vs. Church, 25 Pa., 278; Oliver vs. Piatt, 44 U. S., 3 How., 401.
    The case is like that of trust property, which can be followed and reclaimed in hands of any one but a bona fide purphaser.
    Parties are not allowed any benefit in a court of equity from a judgment or decree obtained by deceiving the Court, or by other species of fraudulent conduct in securing a judgment. Byers vs. Surget, 60 U. S.; 19 How., 308; Edgell vs. Sigerson, 20 Mo., 494; Bigelow, Fraud, 172-175; Edson vs. Edson, 108 Mass., 590; Allen vs. McLellan, 12 Pa., 328; Jackson vs. Summerville, 13 Pa., 359; Hall vs. Hamlin, 2 Watts, 354.
    In Mrs. Krause’s answer in the former suit she denies having any knowledge whatever of the facts averred in the bill, thereby denying any knowledge of the deed in which she joined, or of its purpose.
    In her answer in the present suit she admits the conveyance, knowledge of which she denied having in the former suit, and claims to know that it was bona fide.
    
    The principle on which the Court below based its decree in the former suit, is an equitable one, well established by authority; and the same principle might be applied in this case, so as to protect Mrs. Krause, in any sum actually invested in this property, if anything had been so invested. But, aside from that, it would be inequitable to allow her to profit by the apparent fraud in which she has been an
    
      active party. Hinkle vs. Wilson, 53 Md., 287; Boyd vs. Dunlop, 1 Johns., chaps. 478-482; Williams vs. Savage Mfg. Co., 3 Md., chaps. 419-454; Bump, Fraud. Conv., 294; Stewart vs. Smith, 3 Mackey, 281.
    Where the consideration advanced by a wife for a post-nuptial settlement is inadequate, equity will never sustain the settlement as against her husband’s creditors, further than to secure the payment thereof; and not always even to this extent, especially if she be privy with her husband to a fraud on others. Schouler, Dom. Rel., 188; Herschfeldt vs. George, 6 Mich., 456; Skillman vs. Skillman, 2 Beas, 403; Farmer’s Bank us. Long, 7 Bush., 337; William & Mary College vs. Powell, 12 Gratt., 372; Coates vs. Gerlach, 44 Pa., 43.
    In suits of this character the test is always one of fraud, and that must be determined by the whole facts and circumstances surrounding each case. If viewed as a whole, the chain of transactions is such as to induce belief of fraud; and where there is no satisfactory explanation given or offered, the Court should grant relief.
    Is it to be presumed for one moment, if the facts now shown had appeared before the Court in General Term, when the former cause was heard, that the bill in that cause would have been dismissed? No. The intention of settlement on the wife, to the injury of creditors, would have been demonstrated, and the plaintiff would have been protected. The credulity of the Court could not have been imposed upon. That the same fact now appears, if the defendant’s answer is to be regarded, ought not to prevent relief being granted. Equity will not allow a party to use a technical advantage for the accomplishment of positive injustice. 1 Story, Eq. Jur., sec. 64, note.
    Mr. Franklin H. Mackey, for defendant.
    Joachim’s title to this property as against Clark was res judicata. After a full examination of the facts, this Court in the former case, Clark vs. Krause, 2 Mackey, 559, held that there was no fraud in the conveyance by Krause to Joachim. The only way to have unsettled that adjudication was by bill of review, or a bill to impeach the decree for fraud. Neither of these remedies were taken; and consequently this Court, and every other court must now hold Joachim’s title perfect and unimpeachable at the time of of his conveyance to Mrs. Krause. It having been declared his property, he had a right to give it to her if it' pleased him so to do. The facts ill the answers fully explain the reasons for his so doing. These answers are sworn to. The bill is not. It is not even signed by the complainant, and there is not a word in the evidence to overcome the force of these answers.
   Mr. Justice James

delivered the opinion of the Court:

In April, 1882, the complainant recovered a judgment in this Court against the defendant, Henry Krause, for $1,893.23, upon which execution was returned, nutta bona; and he now seeks in equity to subject to the satisfaction of this judgment certain real estate, the title whereof is held by defendant, Margaret Krause, wife of the judgment debtor, on the ground that it is actually the property of the latter.

The bill states, and the several answers of Henry and Margaret Krause admit, that Henry owned and occupied the premises at the time when the debt was contracted; that in April, 1881, that is, before judgment thereon was recovered, he and his wife conveyed them to one Michael Joachim;- that complainant filed a bill in this Court, in cause No. 8,151, against Krause and wife and said Joachim, seeking to set aside that conveyance, upon the ground that it was intended to hinder and defeat the complainant in the collection of his debt; that testimony was taken and heard therein, and that said cause was, on appeal to the General Term of this Court, finally dismissed. Clark vs. Krause, 2 Mackey, 559.

It is further alleged and admitted that soon after that dismissal Joachim conveyed the premises to the defendant; Mrs. Krause, who was his sister, for the alleged consideration of $5,000 ; that afterwards, on the 13th of June, 1884, Krause and wife executed a deed of trust to the defendants, John Walter and John L. Vogt, to secure a building association in the sum of $1,400; that six days later they executed a further conveyance in trust to secure the payment to Joachim of $3,000, and that two months after that this trust to Joachim was released by a deed signed by him and the trustees, reciting that said $3,000 had been paid in full.

Down to this point the allegations of the bill are admitted by the answers of Krause and wife. It then further alleges that the defendant, Henry Krause, after the conveyance by Joachim to Mrs. Krause, improved this property by building thereon a two-story frame house, suitable for a store and residence, which he occupies as a store; that ever since, as well as before the conveyance to Joachim, Krause had remained in possession of the premises, paying the taxes thereon and keeping up the repairs; and it finally avers, on belief, that with the exception of the deed of trust to secure the building association, all of the conveyances had been made with the fraudulent purpose of preventing the creditors of Krause, and especially the complainant, from securing a lien bn said lands and collecting their judgments, and thereupon charges that Krause is the true owner of the property.

Krause and wife are required to answer under oath, and Krause answers that he occupies the premises only by virtue of his marital right to live with his wife in her house; denies that he has paid any taxes thereon or expended any money for repairs, and denies that he owns the improvements. Mrs. Krause denies the same allegations, and says that the improvements mentioned in the bill were made by her and paid for by means derived from her father’s estate. As to the purchase from Joachim, she answers that she bought the property for $3,500, but that the consideration was named in the deed as $5,000, as being nearer its true value; that she was to give notes for $3,000, secured by a deed of trust, but never gave them, although the deed recited that she did; and that her brother released the trust, in order to enable her to borrow from the building association.

Testimony was taken on the part of complainant but none by defendants.

The avowed scheme of the complainant’s case is to connect the facts surrounding the original conveyance by Krause and wife to Joachim with the facts which followed Joachim’s conveyance to Mrs. Krause, and by this connected array of facts to show an arrangement fraudulent from the beginning, by which the debtor’s property was transferred from himself to his wife. And, in answer to the objection that the decree in the former suit against the Krauses and Joachim has settled the good faith and validity of Joachim’s title, and that nothing can now be considered but the facts of the purchase from Joachim, complainant’s theory, at the argument was that this Court should not feel bound by its own decree in the earlier suit against the Krauses and Joachim, if it should perceive, on an examination of the facts then existing and of the facts afterwards occurring, and on connecting them together, that that decree must have been, obtained by falsehood.

We are of the. opinion, however, that the fact that the former decree between these parties was rendered by ourselves does not in the least degree differentiate its effect as res judicata, and that it is now res judicata that Joachim’s title was valid and can no longer be assailed on the ground that it was conveyed to him with intent to hinder and defraud Krause’s creditors. If this be so, the facts and the effect of the facts which preceded and accompanied that conveyance have also been adjudicated and can no longer be contested. It follows that' the inquiry in the present suit must begin with a conclusive assumption that the grantor to Mrs. Krause had a perfectly good title as against this complainant, and that we are now limited to the question whether the conveyance from this grantor to Mrs. Krause was a mere cover to conceal an actual sale to her husband, and therefore a fraud on Krause’s creditors.

And just here a proposition seems to be suggested rather than distinctly made in the argument. It is this: Conceding that the facts and the effect of the facts preceding and accompanying the conveyance to Joachim are res judicata, and therefore can no longer be contested between these parties, yet they may be reexamined for the purpose of determining the effect and intention of the conveyance by Joachim to Mrs. Krause; that is, of determining whether the so-called purchase by Mrs. Krause was only a fraudulent device to cover an actual purchase by Krause, the judgment debtor. We think that the readmission of these antecedent facts on such a pretext would only be an evasion of the rule that the entire effect of those former facts has been adjudicated and determined once for all. When they have once been considered and disposed of it is inadmissible to bring them again in question, on the ground that they are nowT presented as part of a larger collection of facts, and not, as formerly, as constituting the whole of a transaction. The rule requires that they should be excluded from the present suit, and that we should confine ourselves to the facts of this conveyance by Joachim, the holder of an unassailable title, to the wife of the judgment debtor.

We have carefully considered the evidence touching this transaction, and find that it shows that Joachim had no dealing with the judgment debtor; that, having a right to give this property to his sister as her own, he seems to have intended to exercise that right, and that the husband was a stranger in right to the transaction. It is not necessary to discuss in detail the evidence on this point by which we have been satisfied. It is enough to say that we find that Krause has neither paid nor assumed any obligation to pay to Joachim any consideration for this property, and therefore has done nothing by which he could acquire any right in it. It is immaterial that Joachim could not hold Mrs. Krause personally for that consideration if he designedly omitted to contract with the husband. The effect of such an arrangement was that his only security, was the land itself, and that security he released. After that his conveyance to his sister remained a mere gift. Of course he had a right to make such a gift, and Krause's creditors are not injured even if the purpose of the whole transaction, known and assented to by Krause himself and his wife, was that the gift should be so made that his creditors should find 'nothing in his hands. Not to give a thing to a judgment debtor is not a fraud on his creditors.

The decree of the Equity Cowrt is affirmed.