Case ID: scl_45/html/0601-01.html
Source: Caselaw Access Project
Author: {"author": "Glover, J. Withers, J., Wardlaw, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

M. L. Harvin & Wife, Adm'x of F. Weeks, vs. J. Weeks, Adm'x of R. Weeks.
    
      Bond — Executory Contract — Fraud on Creditors.
    
    Though an executed contract, as a conveyance of land, cannot be avoided, as between the parties, by showing that it was made with intent to defraud creditors, yet in an action brought to enforce a bond, or other executory contract, the defendant may show that it was made to defraud creditors, and thus defeat plaintiff’s recovery.
    BEFORE WHITNER, J., AT SUMTER, FALL TERM, 1858.
    The report of bis Honor, tbe presiding Judge, is as follows:
    “This was an action of debt on bond for payment of money.
    “ Tbe obligee and obligor were related, and bad each died after the day tbe bond was payable. I think years bad intervened, but precise dates were not furnished. A mortgage bad been executed same day of bondy and to secure its payment.
    “Friendly Weeks, tbe obligee, bad said during bis last illness, and eight days before bis death, to a witness, also a relative, who was examined by commission, that be held tbe bond and mortgage on Robert Weeks, but that Robert Weeks owed him nothing; that it bad been taken to secure bis property from' bis creditors, and that nothing was due. .
    “In reply, an effort was made to show that there was a valid consideration, and that the declaration of tbe obligee, if made as reported by tbe witness, was at a time and under circumstances which showed be was not of sound mind. To these ends tbe person who prepared tbe papers, or was present at conversations between tbe parties, and some of tbe previous transactions between them were beard and inquired into, and also tbe state and condition of tbe obligee four days before his death was shown by one of the attending physicians. This testimony is not minutely reported, because not called for by the question raised for the consideration of the Court of Appeals.
    “The testimony being all out, and without objection, for reasons that are obvious, the jury were instructed to find according to the facts as ascertained by them; as the point suggested in the argument would be available before another tribunal, if well founded. The jury was instructed that if the evidence satisfied them there was nothing in fact due and owing on the bond, even although it had its inception in a fraud on the part of both obligee and obligor, as the aid of this Court was invoked, the better rule was to leave the parties a£ found. The verdict was for the defendant.”
    'The plaintiffs appealed, and moved this Court for a new trial, on the ground:
    That his Honor erred, it is respectfully submitted, in instructing the jury as matter of law, that the defendant could prove and rely upon the fraud of plaintiffs’ and defendant’s intestates as a bar to a recovery.
    
      Spain, Richardson,
    
    for appellants, cited Broughton vs. Broughton, 4 Eich. 491, and cases there cited.
    
      Moses, contra.
    Bonds and contracts sought to be enforced, stand upon a -different footing from conveyances executed. In the former case the fraud may be shown. Inhabitants of Worcester vs. Baton, 11 Mass. 377.
   The opinion of the Court was delivered by

Glover, J.

In the opinion of a majority of the Court, the evidence was properly admitted. The question is, can the obligor of a bond, given for the purpose of defrauding creditors, rely upon the fraud in a suit on the bond brought by oneparticeps fraudis. In the case of Broughton vs. Broughton, (4 Rich. 491,) referred to in support of the appellants’ motion, it was held that the defendant, who had executed a conveyance of his land to defraud his creditors, could not show the -fraud of the grantee and himself in an action of trespass to try the title brought against him by the grantee or his heirs. The same point had before been made in Sumner vs. Murphy, (2 Hill, 488,) and O’Neall, J., delivering the judgment of the Court, observes: "the defendant, by a stern but a proper policy of the law, is excluded from the proof which would .show the fraud. He is, in this respect, the actor; his fraud silences and estops him from averring against the deed.” The general principle is well settled both by English and American cases, and -they proceed upon the ground that a party to a deed impeachable for fraud or illegality shall not be heard, to aver the existence of his fraud, and thereby prevent the operation of the doctrine of estop-pel. The rule, however, that a deed is conclusive by way of estoppel, was qualified by the Court in the case of Collins vs. Blantern, (2 Wil. 344.) The action was debt on a joint and several bond executed by the defendants to the plaintiff, to indemnify him in respect to a note given to stifle a prosecution ; and one of the points discussed was, whether, supposing the bond to be void, the facts disclosed in the plea to show that it was so could be averred and specially pleaded. It was held that the bond was void ab initio, and never had any legal entity, and that the maxim that the law will not endure a fact in 'pais, dehors a specialty, to be averred against it, did not apply. This decision has ever since been followed, and it is now well established that fraud or illegality is a good defence to a contract under seal.

In the application of the general rule recognized in Broughton vs. Broughton, and of that adopted in Collins vs. Blantern, a distinction will be found between executed and executory contracts, between conveyances of land or other property and bonds or covenants, where the aid of the Court is asked to enforce the payment of the one or the performance of the other. In executed contracts, the maxim applies, quod fieri non debet,factum valet; whereas, in those which are executory, the rule of law is, ex dolo malo non orritur actio; and this distinction is well sustained by numerous cases .both in England and in this country. In Phillpotts vs. Phillpotts, (70 Eng. C. L. R. 85,) four several annuities, chargeable on certain lands, were granted for the fraudulent purpose of conferring a vote contrary to certain English statutes; and it was held, that as between the parties, the conveyance was effectual, but that it was void to the extent of conferring a right to vote. This case is fully sustained by Doe d. Roberts vs. Roberts, (2 B. & Ald. 367,) where an estate was conveyed from one brother to another for the purpose of giving a colorable qualification to kill game, and, as against the par. ties to the deed, it was held valid; but no right to kill game was conferred. In Bessey vs. Windham, (6 Adol. & Ellis N. S. 166,) the jury found the deed conveying the defendant’s property fraudulent, and the Court agreed to the position taken by counsel that though it might be void against creditors, it operated to pass the goods as against the party himself and strangers, and the case of Doe dem. Roberts vs. Roberts, was the authority relied upon. In a suit for the breach of covenant in a composition deed, whereby defendant and others- had covenanted to indemnify the plaintiff from loss respecting certain acceptances, and the defence was, that before executing the indenture, the parties had agreed that the defendants should receive from the plaintiff more than his other creditors; the defence was sustained on the ground that such-a secret bargain is a fraud on the other creditors, and void when it was made and Parke, B., observes, “ being executory,- it cannot be enforced even against a fraudulent party.” (Higgins vs. Pitt, 4 Wels., Hurl. & Gordon, 312.) The case of Montefiori vs. Montefiori, (1 W. Bl. 364,) was not decided on the principle which is applicable to the cases cited above. The note given by the defendant was for the purpose of defrauding the intended wife of the plaintiff, who was not particeps criminis, but an innocent person, and the language employed by Lord Mansfield, “that no man shall set up his own iniquity as a defence any more than as a cause of action,” applies to a defence set up against the wife, and not against the husband. Walworth, C., referring to this case, says it was decided on a different principle, and that the Court very properly held that it would be a fraud upon the wife of the plaintiff to permit the defendant to repudiate the note. (Nellis vs. Clarke, 4 Hill N. Y. R., 424.) That Lord Mansfield, when he said “ no man shall set up his own iniquity as a defence,” etc., intended to apply the. remark to a defence against an innocent party, is manifest from the language which he uses in Holman vs. Johnson, (Cowp. 343:). “ The objection that a contract is immoral or illegal, as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed, but it is founded in general principles of policy Avhich the defendant has the advantage of, contrary to the real justice as between him and the plaintiff) by accident, if I may so say. The principle of public policy is this': Ex dolo malo non oritur actio. No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.

“If, from the plaintiff’s own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the Court says, he has no right to be assisted. It is upon that ground the Court goes, not for the sake of the defendant, but because they will not lend their aid to such a plaintiff) So, if the plaintiff and defendant were to change sides, and the defendant were to b ing bis act-ion against the plaintiff' the latter would then . have the advantage of it, for, where both are equally in fault, potior est conditio defendentis.” One of the earliest cases is Hawes vs. Leader, (Cro. Jac. 270.) The defendant’s intestate granted to the plaintiff all his goods mentioned in a schedule annexed to the deed, and gave him possession by a platter, covenanting that they should remain in his house, and on demand to be carried away by the plaintiff; and to perform this covenant bound, himself in forty pounds,to the plaintiff. After the death of the intestate, the plaintiff demanded the goods of the administrator, who refused to deliver them, wherefore the plaintiff brought an action of debt in the detinet for the conversion of the goods, and in his declaration showed in specie what goods were in the schedule. (Tide Yelverton, 196, where the case is reported as Hawes vs. Loader.) It was adjudged for the plaintiff on several grounds, arising on demurrer to the pleadings, and among others on the following: That fraudulent gifts are only void against purchasers and creditors, but not against . the parties themselves or their representatives. The action was on an executed contract to recovér the goods which were set out in specie, and the plaintiff did not ask the aid of the Court to execute that which the intestate had promised to perform. Like the plaintiff in Broughton vs. Brough-ton, he relied upon his deed, which conveyed the property. The American cases make the same distinction between executed and executory contracts, in the application of the rule. (Jackson vs. Garnsey, 16 John. 189; Richart vs. Castator, 5 Binn. 109; Clapp vs. Firrel, 20 Pick. 247; Osborn vs. Moss, 7 John. 161; Inhab. Worcester vs. Eaton, 11 Mass. 375.) Mellen, C. J., in Smith vs. Hubbs, (1 Fairf. 71,) speaking of contracts, fraudulent or illegal, says: “ There is a marked and settled distinction between executory and executed contracts of a fraudulent or illegal character. Whatever the parties to an action have executed for fraudulent or illegal purposes, tbe law refuses to lend its aid to enable either party to disturb. Whatever the parties have fraudulently or illegally contracted to execute, the law refuses to compel the contractor to execute or pay damages for not executing; but ’in both cases leaves the parties where it finds them.” So, too, in Norris vs. Norris, (9 Dana, 317,) the same distinction is taken: “ When the parties to an illegal or fraudulent contract are in pan delicto, neither a court of equity nor a court of law will aid either of them in enforcing the execution of that which may be executory, or in revoking or rescinding that which may be executed. In such case the law will not be the instrument of its own subversion, and to every invocation of its assistance replies, in pan delicto potior est condi~ tio defendentis.” Walworth, C., in the case of Nellis vs. Clarke, (4 Hill N. Y. R. 424,) approving the doctrine laid down in these eases, adds: “And the decisions referred to show most-clearly that it makes no difference in the case of a suit upon an executory contract, whether the proof to establish the fraudulent or illegal nature of the transaction comes out from the examination of the plaintiff’s witnesses, or is introduced by the defendant, 'who was himself a party to the fraud.”

The declarations of the obligee in the principal case show that the bond was executed to secure the obligor’s property from his creditors, and that it was, therefore, fraudulent, and the Court is asked to lend its aid to enforce such a contract. To every such application, the answer should be in the language of Wilmot, C. J.: “You shall not stipulate for iniquity; no polluted hand shall touch the pure fountain of justice.” (Collins vs. Blantern.) If, by enforcing the payment of this bond, the guilty party could be punished, the forms of law might be properly invoked, but these parties are in pari delicto, and to aid the obligor in recovering his debt would be to offer a premium to those who assist others in executing tbeir fraudulent purposes. The assistance of the Court will be withheld where a party seeks to rescind, or to have declared void, an illegal or fraudulent conveyance of property, in cases par delictum,, leaving the rogue in the tangled web which he has assisted to weave to catch others; Broughton vs. Broughton. Nor will one who has paid money on a fraudulent agreement be helped to bring it back, because in pari delicto potior est conditio possidentis. (Bostic vs. McCanen, 2 Brev. 275.) And where the obligee of a penal bond, to secure the payment of money founded upon a fraudulent consideration, asks the aid of the Court to secure the fruits of his contract, it will also be withheld; if the attempt be to stifle a prosecution, his purpose is to cheat the State; if t,o protect his property, to cheat his creditor. We approve the case of Broughton vs. Broughton, and recognize the distinction taken by the cases referred to between that case and others, where the contract is incomplete, and the Court is asked to aid in consummating it. A majority of the Court is of opinion that the appeal should be dismissed.

O’Neall and WhitNER, JJ., concurred.

Withers, J.,

dissenting. I am acquainted with the familiar maxims, ex 'dolo malo, or ex turpi causa, non oritur actio, -and in pari delicto potior est conditio defendentis. It may be doubted, nevertheless, whether these maxims will serve to settle this case. Ch. Kent, 2 Com. 467, states the law thus: “The courts of justice will-allow the objection that the consideration of the contract was immoral or illegal, to be made even by the guilty party to the contract; for the allowance is not for the sake of the party who raises the objection, but is grounded on general principles of policy.’’ .He cites first the favorite authority of Lord Mansfield, in Holman, vs. Johnson, Cowp. 343. That - case was a sale of tea, at Dunkirk, by tbe plaintiff to the defendant, knowing the same was to be smuggled into England. The doctrine referred to wás laid down, but the plaintiff, nevertheless, recovered. He cites further, Josephs vs. Pebeer, 10 Eng. Com. Law, 209; Langton vs. Hughes, 1 Maule & Sel. 593, and Griswald vs. Waddington, 16 John. Rep. 486; in all which cases, I believe, the fact of illegality appeared by the plaintiff’s own showing. In the case from 16 John., the contract sought to be enforced was one between alien enemies, originating while flagrant war was pending between the United States and Great Britain. What said the Court in that case ? “ It would be difficult to staté any principle of law more plainly founded in common sense and true policy, than that which declares that a plaintiff must not appear, from his own showing, to have infringed the law of the land, and if he does, he cannot avail himself, etc. The plaintiff must recover upon his own merits ; and if he has none, or if he discloses a case founded upon illegal dealing, etc., he ought not to be heard, whatever the demerits of the defendant may be.” The only other case cited by Ch. Kent is, Mackey vs. Brownfield, 18 Sergt. & R. 239, which involved no matter of ille-' gality or immorality, for it was only a question of evidence; and the extent of the consideration of a perfectly valid mortgage was inquired into to show that less than it purported to secure had been, in fact, advanced; that is, the failure of consideration, or a fraud by one party on another, was- held to be matter of defence even against a specialty, which Duncan, J., said they allowed at law, because they had no separate court of chancery. Now, is there not this distinction, that where a plaintiff can make a prima facie case of right to recover what he sues for, free from the taint of illegality or fraud, the defendant shall not be heard to allege his own fraud or the mutual fraud of the parties, as matter of defence How was Broughton vs. Broughton, 4 Rich. 491; maintained, if noton that ground.? Or the. case of Doe d. Roberts vs. Roberts, 2 Barn. & Alder. 867, which was potent in ruling Broughton vs. Broughton f I fear it is a distinction too refined, to put those cases upon a ground surmised, to wit, the difference existing between contracts executed and those ex-ecutory. In the case of Broughton, the party through whom the plaintiff claimed was in pari delicto with the defendant, and though in theory the paper called a conveyance vested the fee in the' plaintiffs, yet it would have for ever proved a barren deed, if the maxim had been applied to the plaintiff that those in pari delicto could neither of them attract the attention of the Court; that it was deaf to their entreaties, and should leave them statu quo. On the contrary, the Court, in that instance, was very active in behalf of the plaintiff, for the reason that it detected no taint about his case, as he made it prima facie; and would not hear the defendant prove that'the whole transaction arose in a fraud upon creditors. Strong to the same purport was the case from 2 Barn. & Aid. Said Best, “ there is only one case, that of fraud,” (we may add from our jurisprudence, also, failure of consideration,) “ where a deed can be avoided by parol testimony, but that cannot be done where both the parties are implicated in the fraud ;” and both, in that case, were implicated in an indictable conspiracy. He proceeds: The most favorable way in which this case can be put for the defendant would be to say, that this was a voluntary conveyance;. but even then it would be good.” To show that this distinction, founded upon executed and executory contracts, may not be sound, vide the case of Montefiori vs. Montefiori, 1 Wm. Blac. 863. A note by Joseph in favor of his brother, Moses, for a large- sum, founded on a pretence that Moses had a large sum of money in the other’s hands, the purpose being to mislead a lady with whom Moses was in treaty for marriage, and whom he did marry, was held to be valid; and Lord Mansfield said: “ Where, upon proposals of marriage, third persons represent any thing material in a light different from tbe truth, even though it be by collusion with the husband, they shall be bound to make good the thing in the manner in which they represented it. It shall he as represented to be: For no man shall set up his iniquity as a defence, any more than as a cause of action.”

There should be, however, a sensible distinction observed between contracts, whether executed or executory, or partially executed; those under seal, at any rate, made (as the one before us was) with intent to defraud creditors, and those which drive the parties into direct conflict with the mala pro-hibita; such as contracts upon a gaming consideration, for stifling a prosecution, and the like. These are unlawful in their inception, void ah initio, and liable to be so treated every where and by every body, in the hands of a third person, as cause of action or as discount. It is the right of plaintiff or defendant so to treat them — the right of society, not of a particular class. The proposition I would advance is this, that when the object is merely to defraud creditors, or a third person, it shall not be considered that a deed (I need not now go beyond that) made in pursuance of it, as between the parties to it, is fraudulent at all. There shall be no knight-errantry, on the part of the Court, to hunt up a case for voluntary protection where none is called for or needed. As said by Lord Mansfield, it shall be as the parties have it, where no other person intervenes; they shall be held to their own terms. It is enough for the Court to lend a liberal ear to any body’s complaint, and fio vindicate the general law and the integrity of society when they are assailed; to explode a fraud upon a party when he asks that to be done. This will very well agree with Broughton vs. Broughton, and all our cases maintaining voluntary deeds, gifts by parol and so forth, which a donor or his representative shall not dispute upon grounds fit to be occupied by other persons only; and innumerable have been the actions, in trover and other forms, to enforce such transactions. Nor do such actions seem to have been at all regardful of the difference between executed and executory contracts. So also will agree the rule maintaining transfers or liens, which may operate an 11 undue preference” by an insolvent debtor, for which he may be punished, but without avoidiug the transaction between the parties. Upon this ground we can escape the deluding influence of those agreeable maxims with which I set out, and the trouble to which they give rise when pushed to extremity. We may escape another incongruity, to wit, that we shall not explode a contract, repudiate the parties to it, leaving.them wholly helpless, treating them, as it were, as hostes humani generis, upon the sole ground that a fraud upon certain persons was meditated, merely intended, which may never have been, in fact, perpetrated, which the victim in view makes no. complaint about, and which he is fully competent to counteract whenever it may so please him. There is much encouragement for this position, as well as others herein taken, in Hawes vs. Leader, Cro. Jac. 270; Sherk vs. Endross, 3 Watts. & Serg. 255; Nicholls vs. Patten and others, 13 Maine. We shall thus give proper scope to the more amiable phase of the doctrine of estoppel, to the maxim often commended and adopted, (exempli gratia, Kiddvs. Mitchell, 1 N. & McC. 334,) that a party who conveys property to defraud his creditors is estopped to deny his right to convey. Again, it appears to me that we are also encouraged to maintain the ground I occupy by the equity doctrine set forth by Ch. Kent, thus : “A particeps criminis has been held to be- entitled, in equity, on his own application, to relief against his own contract, when the contract was illegal, or against the policy of the law, and relief became necessary to prevent injury to others.”

If the verdict in this case had been made to rest upon the belief of the jury that the bond had been paid, arising from the declaration by the obligee that nothing was due, it would then be one of the many cases in which this Court dismisses tbe appeal because there was nothing but a question on evidence. But not concurring in the legal doctrines which have been made to control the cause, I should favor a new trial.

Wardlaw, J.

I agree that a bond, intended to defraud creditors, is not void between the parties, but in absence of complaint by any creditor, may be enforced. The declarations of intestate, when taken together, amount to no more than an acknowledgment of the purpose for which the'bond was made.

MuNRO, J., absent at the argument.

Appeal dismissed.