#### THE STATE TO THE USE OF SAMUEL McINTOSH *vs.*JOHN *G.*BETHUNE & AL.

As a certificate of bankruptcy may be pleaded in all Courts, it may be impeached for fraud in any Court, in which it may be set up as a bar.

Where a son, being insolvent, conveyed property to his father for an apparently valuable consideration, and was permitted to remain in the continued possession and *exercise*of ownership over it for a number of years, a presumption of fraud is raised, either that the conveyance, though absolute upon its face, was not *bona fide*for the benefit of the father, but upon some *secret trust for the*insolvent vendor or donor; or, at the least, that there was intention to give the son a false credit. The presumption is not a conclusive legal one establishing the fraud, but must be submitted to a jury.

It is not every omission of property in the schedule of a bankrupt, that in. validates the decree of discharge, but only a fraudulent conveyance or wilful concealment of it.

The case of *Garter*v. *Rulland, 1*Hay. 97, cited and approved.

Appeal from the Superior Court of Law of Moore County, at the Fall Term, 1847, his Honor, Judge Caltj-well presiding.

This is a *scire facias*to revive a judgment. The defendant McNeill pleaded a certificate of bankruptcy granted on his application by the District Court of the *140United States for this District. Replication, that the said defendant had fraudulently conveyed to certain pel” sons his lands, goods, and credits, with intent to hinder the relator and his other creditors of their debts, and that he did not make a true and accurate inventory of his property, rights, and credits, in his petition, but was guilty of the fraudulent and wilful concealment thereof; and it then specifies sundry tracts of land and chattels which the defendant then owned, and did not include in his inventory, and wilfully concealed, and had before that time conveyed with the intent to defraud the relator. Rejoinder, and issue.

The original judgment was rendered in August 1838 in a suit commenced in November 183G. The petition in bankruptcy was filed in July, and the certificate granted in October 1842. On the part of the plaintiff, evidence was given, that in February 1S38, the defendant conveyed to his father three tracts of land, and a wagon, four horses, and gear ; and that no part of that property was included in the defendant’s inventory. Evidence was farther given on the part of the plaintiff, tending to shew that the conveyance to the father was made without any valuable consideration, or if for any, for an inadequate one ; and that the defendant continued in the possession and enjoyment of all the land, the wagon, horses and gear, up to the time of the trial in August 1847, using them as his own. On the part of the defendant, evidence was then given, tending to shew that the conveyance from him to his father was founded upon a real sale for a fair price, Evidence was further given on the part of the defendant, that in the year 1840, the lands, which he had conveyed to his father, were sold under a *fieri facias*against the defendant’s property, and were purchased by one Morrison; who, however, had never taken a deed, or possession.

Upon that evidence, the counsel for the defendant insisted, that the conveyance to the defendant’s father was *141made in good faith and upon a sale for an adequate valuable consideration ; and, further, that the sheriff’s sale to Morrison divested any title that might then have been in the defendant, or, at least, excused him for not including the property in his schedule ; and, finally, that the certificate of bankruptcy was a conclusive discharge from this debt. Upon these points, the Court instructed the jury, that the certificate of bankruptcy was not conclusive, but might be impeached in this suit for fraud in the defendant’s conveying his property without a valuable consideration, and to hinder his creditors, and wilfully concealing1 the same in the proceedings in bankruptcy; that if the defendant retained the possession and enjoyment of the property after he had conveyed it to his father, as deposed to by the witnesses, it raised a presumption, that the conveyance was fraudulent; but such presumption would be repelled, if the jury believed, that the conveyance was executed *bona fide,*and for the considerations stated by the witnesses on the part of the defendant. And lastly, that the purchase of Morrison did not divest the title of the defendant, if he had any; and that the case was not affected by that transaction.

The jury found, that the conveyance from the defendant to his father was made to defraud the defendant’s creditors, and that the defendant did not make a full and fair surrender of his property and estate in his schedule, but wilfully and fraudulently concealed parts thereof, to-wit, the land, the wagon, horses and gear, that had been so conveyed to his father, and, by means thereof, fraudulently obtained the certificate of bankruptcy. Judgment was rendered thereon for the plaintiff, and the defendant appealed.

No counsel in this Court for the plaintiff.

*Strange,*with whom was *Kelly,*argued,

That it was error to charge, that fraud is to be presumed from possession; that possesion after a sale of pro*142perty is a mere badge or circumstance of fraud, and creates no presumption, especially in a case where the possession of his certifícate raises a presumption in favor of the bankrupt.

That a sale of land under an execution divests the title out of the defendant in execution even before the purchaser takes his deed. *Davidson*v. *Frew,*3 Dev. 1.

That even if it did not, that fact should have been left to the jury as a matter of excuse, and to shew that the concealment was not wilful. *Stark. Ev.*307.

Ruffin, C. J.

The instruction, respecting the operation of the decree and certifícate of bankruptcy, is sustained by the express provisions of the Act of Congress of August 19th 1841. The first section provides for both a voluntary application of all debtors to be declared bankrupts, and for an application by creditors of certain classes of debtors, to have them so declared. In a case of the latter kind, it is, contrary to the rule in England, enacted in the close of the section, that the decree passed by the Court, as therein directed, “shall be deemed final and conclusive, as to the subject matter thereof.” But the provision is different as to a case of the former kind. Though it may be in the power of Congress to discharge insolvents from their debts, at their own instance, it was, we believe, a new principle in the law of bankruptcy, and so strongly tends to encourage men dishonestly to contract debts, which they do not expect, nor mean to pajr; as to make it highly proper, as far as possible, to guard the Courts from imposition, and protect creditors from fraud in obtaining a discharge. It is enough, to put it in the power of a man, after running in debt, to spend all his property, and then upon his own motion, and upon his own oath, free himself, and his future acquisitions, from liability to his creditors. The law should therefore see, at least, that the party had no property, or that he had freely surrendered all that ought to go towards the sat*143isfaction of his debts. It is a just and fitting requital to one, who attempts to get a discharge by denying that he owns property, when in fact he does, or by purposely concealing any part of what he does own, to refuse him, in the first place, the discharge upon any terms, and, in the next place, to hold a discharge, obtained by such means ineffectual and void, whenever the fraud shall appear. Accordingly, the Act of Congress contains several provisions, intended to counteract' the mischiefs, that might arise from this new principle. The first section requires the debtor to set forth in his petition, “ an accurate inventory of his property, rights, and credits of every name, kind and description, and the location and situation of each and every parcel and portion thereof.” The fourth section enacts, “ that every bankrupt, who shall *bona fide*surrender all his property” (with certain exceptions, not material here) “ for the benefit of his creditors, and shall comply with the orders of the Court, shall be entitled to a full discharge from all his debts, to be decreed and allowed by the Court which has declared him a bankrupt, and a certificate thereof granted to him by such Court accordingly’’, upon his petition filed for that purpose. And if any such bankrupt shall be guilty of any fraud or wilful concealment of his property or rights of property, or shall have preferred any of his creditors, contrary, &c. he shall not be entitled to any such discharge or certificate.” Thus far the Act provides only for the grant or the refusal of the certificate by the Court of the United States, proceeding in bankruptcy. One who has been guilty of fraud, or the wilful concealment of property, “ shall not be entitled to a discharge or certificate.” The bar to the discharge is not temporary, or until the debtor shall supply the omission in his inventory, or make a further and full disclosure ; but it is peremptory and perpetual, at least, in respect of that application, as a penalty for the attempt to commit a fraud on the Act, by a fraudulent conveyance, or wilful conceal*144ment of property. But that is not all. For, the Legislature was aware that such dishonest practices might escape the vigilance of the most cautious Judge, and iftended, if they should, that notwithstanding the success in his application, the' dishonest party should not permanently have the immunities meant for honest insolvents ; and therefore, it was provided further, that such discharge and certificate, when duly granted, shall, in all Courts of Justice, be deemed a full and complete discharge of all debts, &e. and may be pleaded as a full and complete bar to all suits brought in any Court of judicature whatever, and the same shall be conclusive evidence of itself in favour of such bankrupt, *unless the same shall he impeached*for some fraud or wilful concealment by him, of his property or rights of property as aforesaid, contrary to the provisions of this Act, on prior reasonable notice, specifying in writing such fraud or concealment.” The remedy of the creditor is not, therefore, an application to the Court of bankruptejy upon the ground of fraud newly discovered : but it is by replying the fraud of the bankrupt to his plea of the certificate, so as thereby to avoid the bar. As the certificate may be pleaded in all Courts, it follows that it may be impeached in any Court, it whieh it may be set up as a bar. There was, therefore, no error in this part of the instructions to the jury.

The Court concurs also in the opinion with respect to the inference to be drawn from the continued possession and use by the defendant, of the property he conveyed *to*his father. The whole was conveyed at once, and the personalty consisted of the perishable articles of a wagon and team. There was a conflict of testimony as to the consideration and purposes of the conveyance, whether there was an adequate, or even any valuable consideration, or not. In that state of facts, and when it appears that the defendant was, at the time, indebted in sums which remain unpaid to this day, and which, the defen*145dant says, he is unable to pay, a continued possession and exercise of ownership, for upwards of nine years, over all the property conveyed to his father, and, as far as appears, without any act or claim of ownership by the father, do surely raise a presumption of a fraud; that is to say, either that the conveyance, though absolute upon its face was not *bona fide*for the benefit of the father, but upon some secret trust for the insolvent vendor or donor ; or, at the least, that there was an intention to give the son a false credit upon his continuing apparent ownership of the property. The presumption is not, indeed, a peremptory and conclusive legal one, establishing per *se*the fraud. But, in the language of his.Honor, those facts “raised *a*presumption,” that the conveyance was fraudulent ; which, however, would be' repelled, if upon the whole evidence, including the continued possession and enjoyment of the property, the jury thought, that the conveyance was executed for an adequate valuable consideration and *bona fide.*Formerly, indeed,it was held, that the continued possession of personal chattels by a vendor, after an absolute conveyance, was *perse*fraudulent in law — so strong was the presumption then supposed to be. It is true, *Edwards*v. *Harbert,*and that class of cases have not been sustained in their whole extent for many years past. Yet, they are not so far departed from, as to authorise the Court to say, that such continued possession and enjoyment do not create a presumption of covin, either by way of a secret trust, or the giving of false credit. On the contrary, the ground, on which such facts are allowed to go to the jury, is, that a presumption of fraud, does arise from them; though it may, or may not be, sufficient to authorise the finding of the fraud, as it may be fortified or impaired by other evidence. Indeed, in the present ease, the presumption of a fraud was cogent, considering the relation of the parties, and the duration of the enjoyment; for a possession, derived from a *146father, of the wagon and team, and continued so long, is, by presumption of law, a gift, unless the contrary be clearly proved; and a principal ground for that rule» is the security of the son’s creditors. *Carter*v. *Rutland,*1 Hay. 97.

The purchase of Morrison, without taking a deed, did not divest the defendant’s title to the land. Yet, it is not every omission of property in the schedule that invalidates the decree of discharge, but only a fraudulent conveyance or wilful concealment of it. It might have been an honest mistake in the defendant, in supposing that he ought not to inventory the land which Morrison had purchased. On the other hand, the delay of the purchaser for seven years, to take a deed from the sheriff, and the enjoyment during that period, by the defendant, afford reasonable grounds for suspecting the fairness of the purchase, and that some interest remained with the defendant. It was, therefore, as we think, a proper point to be left to the jury, whether the defendant had not some interest in the land, and wilfully concealed it; and, if the case depended on that point, the Court would feel obliged to award a *venire de novo.*But the point in respect to that land became immaterial, by the finding of the jury, as to the wagon, horses, and gear; for, although the defendant may have innocently omitted his naked legal title to the land, if it was purchased *bona fide*by Morrison, yet that did not excuse the omission of the chattels, which Morrison did not buy, but which belonged to the defendant for the purposes of his creditors, and, as the jury found, were wilfully concealed by him. Such conce'alment of those articles as effectually excludes the party from the benefit of the certificate, as if he had also' fraudulently concealed the land ; and, therefore, the presiding Judge was right, as it turned out, in saying that Morrison’s purchase of the land, did not affect the case; and the judgment must *be affirmed.*

Pbr Curiam. Judgment affirmed.