Case ID: sc-eq_16/html/0027-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Ouria.per Harper, Chancellor. . David Johnson, Ben. F. Bunkin.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

J. L. Anderson & B. F. Shaw vs. A. Fuller & T. Steedman.
    1. It is a well settled principle, that a debtor has the right to give a preference among his creditors; but if in the deed of assignment he secures any advantage or contract to himself, this provision invalidates the deed. And the leaving of property in the hands of the debtor, or in his possession, raises the presumption in law, that there exists a secret understanding and a secret trust; and so far as the rights of creditors are affected, the deed is void.
    2. It makes no difference that an additional consideration is advanced, at the time of taking a conveyance or an assignment of property.
    3. Where there is no corrupt agreement between the parties, but an act of spontaneous kindness and indulgence, on the part of the grantee, it would in general be proper, when setting aside a conveyance, on the legal inference alone, to decree it to stand as a security for any consideration advanced at the time.
    4. Where the grantee, at the time of receiving the conveyance, obligated himself to pay off a mortgage and judgment, that liad a lion upon the land conveyed, and afterwards did discharge those lions ; the Court held, in sotting aside the deed, that the grantee was entitled to payment first out of the proceeds of the sale of the land, (decreed to be sold to pay off debts,) for the sums which he had advanced in extinguishing those liens.
    
      Before Dunkin, Chancellor.
    Laurens,
    
      June, 1840.
   At March Term, 1834, for Laurens district, the defendant Thomas D. Steedman was convicted of gaming. The sentence (which was a fine, of one thousand dollars) was left sealed and was not published until the Fall Term, 1836. In December 1836 the defendant received a pardon from the Governor. The land on which the defendant (Steedman) resided had been purchased by him from the ordinary in October, 1832, for five hundred and fifty-three dollars, and stood mortgaged .to secure the purchase money. The other defendant, (Fuller,) was surety on the bond. Steedman wras a man of irregular habits, and much involved in debt, both to his co-defendant and to other persons. On 5th March, 1836, he executed an absolute conveyance to A. Fuller, for the tract of land on which he resided, containing three hundred and ninety acres, for the sum of one thousand nine hundred and fifty dollars. On 11th July, Mrs. Steedman renounced her dower. It was proven on 25th July, 1836. On the 25th July, 1836, the Clerk certifies that the deed -was recorded, but at what time did not appear to the Court, nor is it perhaps very important. Cotemporaneously with the execution of the conveyance, an agreement bearing the same date, ■ was executed by the parties, in the following words, viz : “ Articles of Agreement between Alsey Fuller and Thomas D. Steedman relative to the purchase of a tract of land this day sold and deeded to Alsey Fuller, by the said Thomas D. Steedman, at five dollars per acre, supposed to contain three hundred and ninety acres, which precise quantity is to be fixed by re-survey during the present year. The said Alsey Fuller in payment for said land obligates himself to pay off immediately all judgments in the Sheriff’s office, which are at this time pressing the said Steedman, and as early as convenient afterwards to pay to the ordinary the note given him by the said Thomas D. Steedman, for the purchase of said land, and any other judgments or mortgages that have a lien on said land at this time ; the balance of the purchase money to be paid the 1st day of November, 1837. The said Steedman to occupy and cultivate said land the present year; the said Fuller shall be at liberty to cut timber trees, if he should want them. The land and premises to be delivered up on the 1st January next, unless our agreement hereinafter made shall be complied with. The said Alsey Fuller further agrees to give the said Thomas D. Steedman the liberty of redeeming the said land, or in other words agrees to rescind the contract, provided he, the said Steedman, shall well and truly pay or cause to be paid back to the said Alsey Fuller, on or before the first day of January next, all the money advanced for the said Steedman, including his, said Fuller’s, own judgments at this time held, and ten per cent discount on the same, for the use of the money and trouble in settling the debts, and all other debts that he the said Steedman now owes, or may owe the said Fuller, on 10th day of January next. If all said money shall not be paid up by the date above mentioned, then the contract to remain as above made. The said Fuller shall be at liberty to hold back the last payment until the wife’s dower be made.” This agreement was sealed and delivered in the presence of the same witnesses, but does not appear to have been ever recorded. At the date of this transaction, the land was under levy, and advertised for sale by the sheriff of the district. In pursuance of the agreement, the land was surveyed by Gen. Wright, in March, 1837, and was found to contain only three hundred and thirty-nine 3-4 acres. In the defendant’s (Fuller’s) answer, he states that he paid off and satisfied the judgments and other liens upon the land, the amount of which, together with the debts due by the said Steedman, exceeded the amount of the price to he paid for the land ; that Steedman wholly faded on his part to rescind the contract, or to pay back any part of the money -advanced by the defendant, (Fuller,) and on or about 1st January, 1837, delivered to him the possession of the land according to the terms of the contract, and he “ insists on the purchase of the land as strictly fair and for a full consideration.”

It appeared from the testimony, .that at the time of the re-survey by Gen. Wright, he marked the boundary of about 100 acres, which was to be taken out of the entire tract. Sometime after 1st January, 1837, Fuller assisted Steedman, with his horses and team, in moving to a house which Steedman had built on this 100 acre tract. Steed-man has since always continued to reside on and cultivate this part of the land. At Fall Term 1836, the complainant entered judgment against Steedman on a promissory note payable in January 1835 ; execution was immediately issued, which was returned nid}a bona. It was recently renewed and levied on the 100 acre tract of land, on which Steedman resides, but the sale was forbidden by Fuller, who claims the land as part of the; 390 acres which were conveyed to him by the deed of 5th March, 1836. The object of the bill is to set aside this deed as fraudulent. In. the course of the argument, on the -part of the complainants something was said about construing the entire transaction as a mortgage. But it is enough for the Court to say that this is not the issue tendered by the pleading; nor is the bill framed with that view, nor in the form in which such proceeding should be presented.. Both parties insist that it was an absolute .conveyance. -Complainants alledge it was covinous; defendant, that it was bona fide, for full consideration, and valid in law. With the answer of the defendant Fuller, is filed an account marked exhibit [C} showing the manner in which he had paid for the land, according to the survey of Gen. Wright, the purchase money was $1698 75. The elder judgments which he ■ paid off amounted to $288 75; the bond to the ordinary, on which he was surety to Steedman, to $620 12 1-2 ; the balance of the purchase money was extinguished by debts due to himself by Steedman. It is admitted that Steedman has never been out of possession of the 100 acres, being part, of the tract of 340 acres thus sold to his co-defendant. The account given in Fuller’s answer is this; “ he admits that some time after he bought the land, he told Steedman if he would pay for it he might have one hundred acres of the land, but this was a mere conversation, and Steedman has never paid to the defendant one dollar towards said land.” Steedman states that he did not remove to the 100 acre tract till about two years after the execution of the conveyance — that he would not have let Fuller have the land if he had not agreed to let him have the 100 acres, and that he had never paid any rent for the land, although he had been repeatedly asked for it by Fuller, who told him if he would give a little rent note he might have the land. In the view taken by the Court, the discrepancy in the statements of the defendant is not very material. Fuller being the principal creditor of Steedman, who was then insolvent, purchases from him all that was left of his property. In part payment, it is agreed that his existing and future debts to Fuller shall be extinguished. Steedman is allowed to remain in possession of nearly one third of the property so sold, from that time to the present. In Maples vs. Maples, Rice Eq. 310, it is said by the Court, “ when a debtor sells his property to one of several creditors, in satisfaction of his debt, the creditor becomes the owner of the property, and the debt is gone.

If, instead of enjoying that which is his own, the creditor permits the debtor to have the use of the property without hire or reward, this is inconsistent with tire ordinary conduct of men having a moderate regard to their own interest; it seems an advantage to the debtor to which he is not entitled, by giving him an interest in the property which cannot be rendered available to his other creditors in satisfaction of their demands. It creates a presumption of unfair dealing, that the preference which has been given was the price of this undue advantage.” In Smith vs. Henry 1 Hill, 22, on the authority of which Maples vs. Maples was decided on the circuit, the court remarked that the conditions of such sales are usually known only to the parties, and are incapable of proof. But they decided that it is immaterial whether there was or was not an express stipulation, that the creditor should show indulgence and permit the debtor still to enjoy his property. If the transfer was made by the debtor in a “ tacit confidence, that he to whom the preference was given, would show the indulgence, <fcc., this would be done with a corrupt purpose, to which the creditor would make himself accessory, by allowing the debtor to retain and use the property.” It was also held in that case, “ to make no difference, that besides the pre-existing debts, additional consideration was advanced at the time of the conveyance.” This would open a door to the whole abuse against which the law intends to guard.” The court determined that the secret trust, which the law regards as fraudulent, was evidenced by the debtor retaining possession — that from these circumstances, the law draws the conclusion of fraud, which is incapable of being rebutted or explained.” It is now well settled that a debtor has the right to give a preference among, his creditors; but if, in the deed of assignment, he secures any advantage or contract to himself, this provision invalidates the deed. Now, the circumstance of leaving the debtor in possession of the property, supplies the place of a provision to that effect in the assignment or conveyance. The law presumes an understanding between the parties ; infers the existence of a secret trust; and so far as the rights of creditors are effected, the deed is void. It seems impossible to withdraw this case from the operation of these principles. It remains only for the .court to declare, that as to these complainants, and their rights to proceed under the levy made by the sheriff, the deed of 5th of March, 1836, is null and void, and it is so ordered.and decreed.

From this decree the defendants appealed, on the following grounds :

1st. Because the sale of the tract of land in dispute, made by Steedman to Fuller, was bona fide, for a full consideration, which was paid, and was therefore valid.

2nd. Because the deed from Steedman to Fuller was executed on the 5th March, 1836, and recorded on the 26th July, 1836, within six months, which operated as notice, and the subsequent possession of a part of the land by Steedman constituted no evidence of fraud.

3rd. Because the covenant entered into between Steed-man and Fuller on the day the conveyance for the land was executed, was an independent covenant, by which no advantage was secured to Steedman, and the subsequent conversation that Steedman should have a part of the land, if he paid for it, was not binding, nor did it furnish any evidence of fraud.

' 4th. Because there was no evidence of fraud, and the decree of the Chancellor is erroneous.

5th. Because if the deed -should be set aside as an absolute conveyance, it should stand as a mortgage, and Fuller should be reimbursed the amounts advanced to Steedman and on his account, with the interest thereon.

Ouria.per Harper, Chancellor.

— We concur with the Chancellor in thinking that the case comes within the principle of the decisions in the cases of Smith vs. Henry, 1 Hill Ch. 52, and Maples vs. Maples. Rice Eq. 310. And it does not seem to us material whether the conveyance be regarded as a mortgage or a sale. It was, evidently, the understanding of the parties, that it was a sale with the right of redemption, and in pursuance of this understanding, the premises were generally surrendered to the defendant Fuller; the defendant Steedman being permitted to retain the hundred acres in question. This is the case in which the law draws the inference, that this advantage was the consideration on which the preference was given to the creditor. The answer of Fuller is not- evidence to shew that it was upon a subsequent agreement to sell, that Steedman was put into possession ; nor is the testimony of Steedman material.

It is said in the case of Smith vs. Henry, that it makes no difference that an additional consideration is advanced at the time. In general, when a conveyance is set aside for fraud, it is within the discretion of the Court to decree the conveyance to stand as a security for the money actually paid. This is commonly done where there is no im-putaiion of moral fraud, or the proof of actual fraud is in any degree doubtful: See McMeekin vs. Edwards, 1 Hill Ch. 294, and the cases there referred to. And this does not disagree with the case of Miller vs. Tollison, Sta. rep. Eq. 145, where a conveyance absolute on its face, having been made to secure a previous debt, & the grantee having fraudulently attempted to set it up as an absolute conveyance against creditors, the court would not allow it to stand as a security for the money actually due. As the rule of Smith vs. Henry is an inference of strict law, on account of the danger of any other construction ; as it may be that there was no corrupt agreement between the parties, but an act of spontaneous kindness and indulgence on the part of the grantee, perhaps it would be generally proper, when setting aside a conveyance on the legal inference alone, to decree it to stand as a security for any consideration advanced at the time.

In this case there was a consideration at the time. The defendant covenanted to pay off the mortgage to the Ordinary and the judgments having a lien on the land, which he has since done. But this is stronger than the ordinary case of money paid at the time. If a person having the oldest judgment against another, to the full value of the property, should take an assignment of the property in satisfaction of the judgment, this would not come within the rule of Smith vs. Henry. The assignee had already a right to be satisfied out of the property, in preference to all other creditors, and it could be no fraud on them to take from them what they never could have got. The mortgage to the Ordinary had the first lien on the land, and if, without taking a conveyance, the defendant had paid it off and taken an assignment to himself, he would have had the same priority. So if he had paid off the judgments having a lien on the land, and taken an assignment, his own judgments were entitled to' satisfaction out of the property, in preference to all subsequent liens, or creditors. And certainly there can be no wrong to the complainants or any subsequent creditors, that these claims should be first satisfied out of the land. The course of the English practice would be, to decree that the complainants should have the right to redeem, but it is the established practice of our courts, to direct a sale of the land and the payment of the4proceeds to creditors according to their priorities. For this purpose, it will be necessary to order a sale of the entire tract of land. It is, therefore, ordered and decreed, that the commissioners take an account of the liens, existing on the land at the time of the conveyance, and which were satisfied by the defendant Fuller, including his own judgments; and of all other liens, prior or subsequent to the conveyance; that the complainants be at liberty to redeem the land by paying to the defendant Fuller, the amount which may be found due him on account of the said liens, extinguished by him on or before the first day of January next; or if they shall fail to do so, that the commissioner proceed on that, or some other convenient sale day, to sell the entire tract of land for cash, and that he pay the proceeds of the sale to the defendant Fuller and the other creditors of the said Thomas J. Steedman, according to the priority of the said liens. Costs to be paid out of the proceeds of the sale:

Young, for the motion,

/Sullivan, contra,

WM. HARPER.

We concur.

. David Johnson, Ben. F. Bunkin.