Case Name: Lang v. Lee and Others
Court: Supreme Court of Appeals of Virginia
Jurisdiction: Virginia
Decision Date: 1825-06-17
Citations: 3 Rand. 410
Docket Number: 
Parties: *Lang v. Lee and Others.
Judges: 
Reporter: Virginia Reports
Volume: 24
Pages: 608–616

Head Matter:
*Lang v. Lee and Others.
June, 1825.
Recommendations-Liability ol Party Recommending. —Where one man recommends another to a third, as being- worthy of trust, by which the person recommended obtains a credit, the party recommending shall be answerable for any loss the other may sustain in consequence of the credit, if he knew, at the time, that the man for whom he vouched was not trust-worthy. So decided by two Judges out of three.
Deeds — Inconsistent Reservation — Effect. —Where a deed reserves to the grantor a power inconsistent with the avowed object for which the deed is made, it will be null and void, as against creditors ■ and purchasers. By two Judges.
This was an appeal from the Williams-burg Chancery Court, in which Lang brought a suit against Le.e, Browne, Tier-nan & Sons, and Henley.
The bill sets forth, that Lee executed a deed, on the - day of March, 1819, whereby he conveyed to- Browne all the stock of goods then in the possession of the said Lee, and the undivided moiety of a schooner, her tackle, &c. upon trust to secure a debt due from Lee to Lang, the amount of which is not specified, and indemnify Lang for certain securityships. which he had entered into for the said Lee: that the amount of debts could not be conveniently ascertained when the deed was executed, and a paper was attached to the deed, in the proper hand writing of the said Lee, on the 10th of March, notifying the trustee, Browne, that the amount of the trust was $5150, which, on a rough estimate, was thought the probable amount; that at the time of executing the deed, the said Lee was indebted to the complainant, on various accounts, in the sum of $3285 63 cts. and interest, from which is to be deducted $510 96 cts. since received in goods, in July or August preceding; that the complainant was also bound as surety for Lee, on a note, on which suit had been brought and judgment obtained thereon, for which he expected daily to be called on. This note the complainant estimated at $300: that the said Lee was indebted to Gray, Keirle, and Tiernan & Sons, in different sums, the former of whom had sent on to the complainant, his note, to collect: that it was *agreed that Tiernan & Sons should have the benefit of any surplus of the funds arising from the deed, after satisfsdng the debts. due to the complainant, and those for which he was surety: that the said Lee, afterwards, on the 4th of August, 1819, executed a deed conveying all the property embraced by the before mentioned deed (except the undivided moiety in the vessel and her tackle, &c.) to Henley, as a trustee, to secure the payment of $1519 26 cts. and interest, due by him to Tiernan & Sons: that before the execution of .this last deed, the said Henley, and Tiernan & Sons, and the agent and attorney of the said Tiernan & Sons, had knowledge of the execution of the first mentioned deed, or had heard such reports of its existence, as should have put them on enquiry: that Henley had since taken possession of the property embraced in the last deed, and made sale thereof, to the amount of $1200 or $1300; and the complainant apprehends that he will part with those funds, though they are liable to the first deed. He therefore prayed that Henley might be injoined from parting with the funds, whether in money or bonds, or other securities, till the future order of the Court: that they might be applied to the payment of the debts due to the complainant by the said Lee, and to-indemnify and save him harmless, according to the purposes of the deed to the said Browne: that Lee might be restrained from selling the undivided moiety of the said vessel, &c.: that he might be compelled to deliver up the same to the said Browne, to be sold immediately, and the proceeds held subject to the order of the Court, &c.
The 'Chancellor awarded the injunction, until the further order of the Court.
Tiernan & Sons answered, admitting the execution of the deed of trust to Browne, as stated in the bill; but averred that it was expressly understood by Lee and Lang, that the debt due to them was provided for in the said deed, and that the responden) s were to participate in the property conveyed, in proportion to the amount of their '"respective demands: that when the memorandum was handed in, their demand was included in the sum of $5150: that the goods which they furnished Lee, and which created their present claim, were furnished upon the recommendation of the said Lang, who introduced the said Lee to the respondents, and advised them that he was worthy of credit, and that the respondents furnished the said goods, upon the faith of that representation; the said Lee being an entire stranger to them: that at the time Lang introduced Lee to the respondents, the said Lee was insolvent, and not worthy of credit; and that Lang knew the fact; as was proved by the circumstance of the said Lang procuring the said deed, immediately after the return of him and Lee, from Baltimore, with the goods, and by many other circumstances: that Lee, at the time when this debt was created, was largely indebted to Lang, which Lee had no means of paying; and that as soon as Lee got possession of the goods, Lang took the deed aforesaid: that since the said deed was obtained, Lang actually procured of the said Lee, $500 worth of the said goods, which were applied to reduce his claim against Lee: that the respondents finding that they were about to lose their entire debt, by the insolvency of Lee, and the practices of Lang, did procure, through their attorney, the deed to Henley, as a trustee; but they deny that they, or their attorney had, at that time, ever seen the said deed, or that it was recorded, although they admit that their attorney had heard that such a deed existed, &c.
Browne states in his answer, that he was not interested in the suit, being a mere trustee: that such a deed as has been described, was executed by Lee to the respondent: that he was frequently called on by Lang to enforce the deed; but none of his applications to Lee for the stock of goods, or books and accounts, were attended to: that when the deed was drawn, the parties had not fixed on any balance due from Lee to Lang, or the amount of Lang’s responsibility as surety for
Lee: that shortly after, the “^respondent received a memorandum of the sum to be expressed in the deed, &c.
Lee states in his answer, that he did make a deed of trust to secure the complainant in a debt which the respondent owed him, and to indemnify him against some debts for which he was bound as surety for the respondent; of which latter description was the one due by the respondent to Tiernan & Sons, because the complainant was the cause of the respondent’s purchasing- the goods of Tiernan & Sons, and without whose aid the respondent could not have purchased, he being an entire stranger in Baltimore: that the complainant stated to the respondent, that he felt himself bound to pay the debt to Tier-nan & Sons, or to see it paid, as he (the complainant) had carried the respondent to Baltimore, introduced and recommended him: that under this impression, the deed aforesaid was executed, and the debt to Tiernan & Sons was included in the sum of $5150, as stated in the memorandum: that the respondent’s debt to Lang, was considerable, at the time the purchases were made in Baltimore; and after their return from Baltimore, the respondent executed the deed aforesaid to Lang, conveying the goods which he brought on with him, and which remained unsold at the time of the deed: that the goods which the respondent had, at the time that he returned from Baltimore, if they had been sold at auction, would not have commanded money enough to pay the sum demanded by the said Lang; although if Lang had taken them back at the same prices that they were sold by him to the respondent, it is probable they would have been sufficient: But the said goods were bought by Lang, at very high prices, and would not have sold for near what they cost: 1 hat-after the respondent had begun to decline in liis business, Lang purchased several hundred dollars worth of the goods, which the respondent had bought of Tieruau & Sons, and he bought with a knowledge that they were the same goods: that the complainant having refused to let Tiernan & Sous participate in the trust fund, he executed ’"the second deed to Henley, because he thought it right he should do so, &c.
The deed to Browne is sufficiently described in the opinion of Judge Carr.
Keirle, a merchant in Baltimore, deposed, that in October, 1818, Lang came to his store, and priced his goods, and enquired his terms. After some conversation respecting the mode of payment, the deponent finally agreed to allow six months credit, and a draft upon Baughan: that soon afterwards, Lang and Lee came to his store, and commenced laying off the goods: that Lee would first shew the goods to Lang, and with his approbation, took them, but not otherwise: that after the goods were packed, Lang called and marked the trunks, and requested the bills to be made out, one in the name of Lee, and one in the name of Lang: that after Lang had examined the bills, he requested a draft to be drawn for the whole amount of the two together, and when it was made out, he desired Lee to sign it, which he accordingly did: that the deponent, not being acquainted with Lee, observed to Lang, that if the draft was not paid by Baughan, he should hold him accountable for the amount. To which Lang replied, that he should remit funds to meet it before it became due, &c.
Morgan, a clerk in the house of Tiernan & Sons, deposed, that he was present when Lee was introduced to Tiernan & Sons by Lang, in October 1818, on whose recommendation, they let him (Lee) have goods: that in a day or two- afterwards, Lang came to select the goods, looked over them, said he would call again, and went away: that next day, Lang called repeatedly daring the day, and enquired if Lee had come: that during the same day, Lee also called repeatedly, and anxiously enquired if Lang had come, saying that he wished to proceed to the selection of the goods, and he did not wish to select them, without his presence: that during the selection, Lee would accept any piece upon Lang’s recommendation, he (Lang) saying “we will divide them when we get home:” that Lang *recommended Lee as a young man of integrity, and that as such, he was entitled to confidence and credit, &c.
Baughan deposed, ■ that- he became acquainted with Lee, in the fall of 1818, in consequence of an introduction from Lang: that Lang spoke of Lee as a correct young man; in consequence of which, the deponent was induced to have the fullest confidence in him, and of his ability to meet any engagements he might enter into, and the more particularly, as Lang said that Lee had married, or was about to marry, into a family by which he expected to get some money; and that he knows that Lee was enabled to make considerable purchases in Baltimore, by Lang’s strong recommendation.
Gray states, that Lang introduced Lee to him in 1818, and at the same time recommended him as a responsible man; which induced the deponent to credit him for what groceries he wanted: that Lee purchased of him in 1818, goods to the amount of $543, paid in. 1819 $400, and made a further purchase, on which, and the balance of the first purchase, he remains indebted $700 15 cts.: that at the time of paying the $400, and of the second purchase, Lang was not present, &c. -
Lee’s deposition was also taken, stating, that previous to his trip to Baltimore,' in the fall of 1818, the deponent was largely indebted to Lang, for goods purchased of him: that at the time of that trip, he was also largely indebted to him: that the said Lang, accompanied the deponent to Baltimore, where he was recommended and introduced to Baughan, a commission merchant, and others, by means of which introduction and recommendation, the deponent was enabled to purchase goods to a considerable amount, say $2500 or thereabouts: that the deponent was an entire stranger in Baltimore at the time: that the deed of trust to Browne, was intended to cover the balance due to Lang; but the amount was left blank, and was afterwards supplied by the memorandum above-mentioned: that in this estimate, the debt to Tiernan & Sons, was included, and *Lang often said, that he felt himself bound to see Tiernan & Sons paid, as he had been the cause of the deponent’s making the purchase: that after the deponent returned from Baltimore. Lang took from the store of the deponent, goods to the amount of several hundred dollars, being part of the same goods which had been bought of Tiernan & Co. and which Lang knew to be the same goods: that he was not recommended by Lang to Tiernan & Co. but only to Baughan, Gray and Boyle: that he was only introduced by name to Tiernan & Co. without any recommendation: that he was not present at any recommendation to Boyle, Gray, & Baughan, but was told by Lang that Baughan would endorse for the deponent, for 2J4 per cent, but that he might purchase of Gray & Boyle without an endorser, from what Lang had told them of the deponent’s character and situation: that there was no consent or understanding between the deponent and Lang, to get possession of the goods in Baltimore, by means of Lang’s recommendation, or with any view to Lang’s security; or that any part of them should be thereafter delivered -to Lang, in diminution or discharge of the debt due by the deponent to Lang; but all the purchases were .made by the deponent fairly on his own account: that he understood that Lang merely introduced the deponent, as one worthy of confidence, &c.
The Chancellor decreed, that the covenant in the deed of trust to Browne, by which it Js stipulated “that the goods are to remain in the possession of the said Lee, and he is empowered to make sales of them, always accounting with the trustee herein named, if required to do so,” being inconsistent with the professed objects of the said deed, renders the deed void per se, so far as it relates to the said goods, as against creditors and subsequent purchasers, even with notice of the said deed; and if not, that the subsequent sale made of the said goods by the said Lee to the defendant Henley, in trust for the benefit of Tiernan & Sons, the bona fide creditors of the said Lee, was rightful *and in conformity with the authority conferred on the said Lee by the said covenant, and that the said Lee alone is accountable for such sale, (if required,) to the trustee in the said first mentioned deed. He, therefore, dissolved the injunction and dismissed the bill.
Lang, appealed from this decree.
Wickham, for the appellant.
Nicholas and Leigh, for the appellees.
June 17.
Deeds of Trust — Inconsistent Reservations — Effect.— A deed of trust made by the debtor professedly for the indemnity of certain preferred creditors, reserving to the grantor a power over the property conveyed, inconsistent with the avowed purposes of the trust, and adequate to the defeat thereof, is, because of such reservation, void as to any creditor thereby postponed, and as to purchasers. As so holding, the principal case is cited with approval in Sheppards v. Turpin, 3 Gratt. 374, 397, and foot-note-, Williamson v. Goodwyn, 9 Gratt. 503, 506, and footnote-, Sipe v. Barman, 26 Gratt. 569; Perry v. Shenandoah Nat. Bank, 27 Gratt. 755, 757, and foot-note (in this case it is said that the principal case and the doctrine it established have been affirmed and approved in several subsequent cases, and may now be held as the settled law of Virginia); M’Cormick v. Atkinson, 78 Va. 10; Wray v. Davenport, 79 Va. 24; Young v. Willis, 82 Va. 296; Saunders v. Waggoner, 82 Va. 323; Hughes v. Bpling, 93 Va. 424, 25 S. B. Rep. 105; Kuhn v. Mack, 4 W. Va. 194; Garden v. Bodwing, 9 W. Va. 122; Gardner v. Johnston, 9 W. Va. 407; Goshorn v. Snodgrass, 17 W.. Va. 764; Harden v. Wagner, 22 W. Va. 364; Claflin v. Foley, 22 W. Va. 441; Livesay v. Beard, 22 W. Va. 591; Klee v. Reitzen-berger, 23 W. Va. 755; Shattuck v. Knight, 25 W. Va. 598; Landeman v. Wilson, 29 W. Va. 707. 722, 2 S. E. Rep. 205, 213; Baer Sons Grocer Co. v. Williams, 43 W. Va. 327, 27 S. B. Rep. 345; Conaway v. Stealev, 44 W. Va. 168, 28 S. B. Rep. 795. And in Brockenbrough v. Brockenbrough, 31 Gratt. 590, it is said: ‘‘There is no doubt that the provisions of a mortgage or deed of trust may be of such a character as of themselves to furnish evidence sufficient to justify the inference of a fraudulent intent. Such is the case where the grantor reserves a power over the property conveyed incompatible with the avowed purposes of the trust and adequate to the defeat thereof. This principle was enunciated in Lang v. Lee, 3 Rand. 410, and has been repeatedly recognized by this court in subsequent decisions. Sheppards v. Turpin, 3 Gratt. 357, 373, 397, 398 et sea. ; Spence v. Bag-well, 6 Gratt. 444; Addington v. Etheridge, 12 Gratt. 436; Quarles v. Kerr, 14 Gratt. 48; Perry v. Shenandoah Nat. Bank. 27 Gratt. 755.” To the same effect the principal case is cited in foot-note to Spence v. Bagwell, 6 Gratt. 444; Paul v. Baugh, 85 Va. 960, 9 S. E. Rep. 329. The principal c^se is distinguished in Marks v. Hill. 15 Gratt. 416; Hurst v. Leckie, 97 Va. 555, 34 S. E. Rep. 464; Norris v. Lake. 89 Va. 516,16 S. B. Rep. 663. See further, on this subj ect, foot-note to Gordon v. Cannon, 18 Gratt. 386; monographic note on ‘‘Fraudulent and Voluntary Conveyances” appended to Cochran v. Paris, 11 Gratt. 348, mono-graphic note on ‘‘Assignments for the Benefit of Creditors” appended to French v. Townes, 10 Gratt. 513. The principal case is also cited in Dickenson v. Davis, 2 Leigh 409.

Opinion:
The Judges delivered their opinions.
JUDGE CARR:
The plaintiff took a deed of trust from Lee, on a quantity of goods, wares and merchandize, to secure certain debts. One of the defendants, Tiernan, a merchant residing in Baltimore, took a subsequent deed for the same goods, got possession, and was proceeding to sell. The plaintiff filed his bill to injoin the sale, and claiming the goods. The Chancellor dismissed the bill, on the ground that Lang's deed was fraudulent and void ,as to creditors.
I shall consider; 1st, whether Lang was not liable to Tiernan, for the full amount of his debt, on account of the representation he made to him of Lee's situation and credit; 2d, whether Lang's deed was not fraudulent and void.
1. "Fraud without damage, or damage without fraud, gives no cause of action; but where these two do concur, there, an action lieth." Per Croke, J. 3 Bulstr. 95. Upon this ground, it was decided, in Pasley v. Freeman, 3 T. R. 51, that if A. being asked whether B. may be trusted, replies he is an honest man, and worthy of trust, A. knowing at the same time that B. was unworthy of trust; *this renders A. liable for any loss incurred by the party trusting B. in consequence of this false and fraudulent representation. On the same ground stands the case of Eyre v. Dunsford, 1 East. 318, where the defendant being ajrplied to by the plaintiffs, to inform them whether one Thompson, of Hamburgh, might be safely trusted, said, that he did not know any thing of Thompson, but what he had heard from his correspondent; but that Thompson had a credit lodged with him (the defendant', for 120001. by a respectable house at Ham-burgh; and that he supposed the plaintiff might execute the order (which was for 10001.) with safety; adding, that this advice was given without prejudice to himself. The plaintiff credited Thompson, on this representation, and he failed. He sued the defendant; and it turned out in evidence, that the credit, which the defendant had represented as unconditional, depended on Thompson's depositing goods with him, to the amount of 360001. Lord Kenyon observed, "When one man applies to another, to know the circumstances of a third, who offers to contract with him, that other need not answer the enquiry at all; hut if he do, he is bound in justice and common honesty, to give a fair representation of what he knows. On the contrary, the defendant, when applied to, says, we know nothing of him ourselves, but we have a credit lodged with us by a very respectable house of Hamburgh, for 120001. which we hold at his disposal. Now, this was grossly false; for the instruction to the defendant was nothing more than this; that when Thompson had lodged goods with him to the amount of 360001. he was to give him a credit for 120001.;" and the defendant was held liable on his false representation. The next case is Haycraft v. Dunton, 2 East. 92. It grew out of the extraordinary cheat practised on the public, by Miss Robertson, who, by many ingenious devices, so far wrought upon the credulity of her neighbors, as to persuade them that she was a lady of great wealth, greater expectations, and most respectable connexions. Among others, the defendant, *a cur-rier, who lived near the magnificent establishment she had set up, was so far duped as to advance her large sums, without taking any security. He also asserted to the plaintiff, who, being about to deal with her, made enquiries of him as to her credit, that he knew of his own knowledge, that she had a considerable fortune, larger -expectations, and might, be trusted with -perfect safety. After she absconded, the. plaintiff sued the defendant on this representation, he having trusted Miss Robertson on the strength of it. The jury found a verdict for the plaintiff, and upon a rule, the Court set it aside, and granted a new trial, (Kenyon dissentiente.) on the ground that there was no fraud; the defendant believing sincerely that the representation he made was true.
In Evans v. Bicknell, 6 Ves. 186, Lord Eldon strongly disapproves of the doctrine of Pasley v. Freeman; and calls it a dangerous doctrine. His chief objection to it seems to be, that it puts it in the power of a single witness, to fix upon a party the debt of another; and this, though the party charged should deny it ever so strongly; whereas, he says, the answer of the defendant in equity would prevail against the evidence of a single witness. But this objection is very well answered by Lord Erskine, who, in Clifford v. Brook, 13 Ves. 133, says, "With regard to Pasley v. Freeman, a considerable difference of opinion prevails, and some of the most-correct judgments appear to me to have been surprised. My own opinion upon that species of action, does not concur with that of Lord Eldon, as expressed in the case of Evans v. Bicknell; which opinion, I know, his Lordship constantly held in the Court of Common Pleas. The mistake of those who invade the principle of that action, consists in this; the proposition is not that if a man asked whether a third person may be trusted, answers, 'you may trust him, he is a very honest man, and worthy of trust,' an action will lie, if he proves otherwise. There must be, the knowledge at the time. That is 1 lie sound principle; that the defendant knowing *that person dishonest, insolvent and unworthy of trust, made the representation, and that is the subject of an action, &c. As to the danger from a single witness, is not that sufficient for conviction of a capital crime? That objection goes to the very root of the law; which is uniform in principle and practice, with the single exception of perjury, as there is oath against oath. The case of Pasley v. Freeman, therefore, stands upon the clearest principles of jurisprudence, and has no connexion with the statute of frauds, which applies where one man undertakes for the debt of another." In Benson v. Bronson, 7 Johns. Ch. Rep. 202, Chancellor Kent, speaking of Pasley v. Freeman, says, "There is no dispute about that doctrine. It is a principie of universal law. Fraud and damage, coupled together, will entitle the injured party to relief, in any Court of Justice."
Thus stands the doctrine of Pasley v. Freeman, and restricted as it is, to cases of fraud and consequent damage, I think it sound and wholesome law.
Let us examine whether the case before us, be within its influence. Lee and Lang lived in the same village; Lang, a man well established in business and character, well known in Baltimore as a merchant; Lee, a young man, entirely unknown in Baltimore, and incumbered by a debt to Lang, greater than his property would discharge. They travel together to Baltimore, for the purpose of getting goods on credit; Lee taking with him no letters of credit or introduction, that we hear of. What must have been his dependence? What the understanding and arrangement between himself and Lang before they set out? Why, that Lang should introduce Lee to the merchants, in such a way, as to procure for him a credit. This, it will be observed, is not the case of a person applied to for the • character of another, and speaking in answer to that application. The enquirer in such case is the actor, the person interested; the respondent merely passive. He discharges the duty of common civility only, in replying *to the question; and as there is nothing to expose him to the suspicion of a preconcerted design, to procure credit for the third person, his words should not be construed strongly against him. But here, the merchants did not come to Lang to make en-quiries. He sought them, for the purpose of introducing Lee, and obtaining a credit' for him. He brought Lee too, from a place so distant, that the merchants had no means of applying to others, for his character, and were compelled to act on Lang's representation solely. These considerations, added to the important fact that Lee was his debtor, shew the peculiarly delicate and responsible situation, in which Lang had placed himself. With these facts in mind, let us look to the evidence.
The defendants expressly state in their answer, that Lang introduced Lee to them, as a man worthy of credit, and that they trusted him in consequence of that representation. Morgan says, that Lang introduced Lee to Tiernan, as a young man of integrity; and as such, entitled to credit. Baughan says, that Lang introduced Lee to him, and that in consequence of the generally good character he gave him, he had the fullest confidence in his ability to meet any engagement he might make; and he knows that by the strong recommendations of Lang, he was enabled to make considerable purchases in Baltimore. Gray says Lang introduced Lee to him as a responsible man; which induced the deponent to credit him for what groceries he wanted. Lee, himself, (in his deposition) says, that he was a stranger in Baltimore, and that by Lang's introduction and recommendation, he was enabled to purchase to the amount of $2500 worth of goods. Now, I do not care in what set form of words, these recommendations were made. The clear intention was to obtain a credit for Lee, and the effect was produced. Was the representation a fair one? Did it place before the merchants, truly, the real situation of Lee; so that, seeing both sides of the question, they might be enabled to judge, whether they could safely *trust him? On the contrary, his conduct was, to my mind, grossly fraudulent. Here is a creditor taking his debtor to a foreign market, where he is well known, the debtor a stranger; introducing him as a man worthy of credit; yet carefully concealing the relation in which they stood, — the vital fact, that he .was deeply indebted to him. Suppose he had told the truth; — had said, "here is a young man, of whom I have a good opinion. I believe him honest, and should be pleased to see him succeed in getting goods; but I feel bound, in common honesty, to disclose the fact, that he is indebted to me, more than he is worth." Can any man believe, that the merchants wortld have trusted him? No! Why was not this fact stated? Not because it was forgotten. That was impossible; for the very representation he was making, must have brought it distinctly before him. Why not state it? Because he knew it would defeat his purpose, and therefore, fraudulently withheld it. If conduct like this be tolerated, see what a temptation it holds out to creditors, to gain for their debtor a fictitious credit, by which he might be enabled to pay their debt. They have only to take him to a strange place, introduce him as a. man worthy of credit, obtain goods for him, and convert them to their own purposes; leaving those whom they had deluded, to bear the loss. How was it in this-case? Soon after their return, Lang got $500 worth of the goods; and afterwards-took a deed of trust upon the whole. Upon the first point, then, I am clear, that Lang's representation was wilfully and fraudulently false; and that he was liable to Tier-nan, in case of Lee's insolvency.
2. Let us now examine the deed. The sums of money which it was taken to secure, are left blank; and this, not from ignorance or mistake, but as the trustee tells us, because the parties had not, when 'the deed was executed, fixed on the. sum due from Lee, or those for which Langwas his surety; and this important desideratum was furnished afterwards, not by the creditor, but the debtor, in the following loose note to the trustee. "Mr. Browne, *Sir, The amount of the trust, say $5150," signed "Wm. Lee;"' a mere conjectural balance, "say $5150,"' furnished too, by the debtor. Look now at the description of the goods. "All the entire stock of goods in the possession of the said Lee, in his store, in the city of Williamsburg." No inventory, no invoice, no list. Does this look like a real bona, fide transaction? But the worst is to come. The deed was executed in March, 1819. In the July following, he was to pay one-third of the debt; in November, another third; and in January, 1820, the residue;giving him nearly a year for the whole; and in the mean time "it is covenanted and agreed," (says the deed) "that the said' goods are to remain in said Lee's possession, and he is empowered to make sales-of them," but is to account with the trustee, if called on. Now I ask, what possible' security could the deed furnish, incumbered? with a stipulation like this? Is it not completely a felo. de se? A security is taken on goods, and they are left in the possession of the debtor for ten months, with a-power to sell and dispose of them, as he may think proper; no check whatever; for the clause about accounting, relates only to the money, for which he has sold the-goods. Does not this resolve the whole matter into personal security? And is the-debtor more bound to account for the money, than he was before, for ihe debt?' It is said he was trusted as factor. But where is the evidence of this? The transaction it not marked with a single feature-of factorage. There are-no terms, no salary, no per centage for collection. How was Lee to live, while doing this business? No doubt, on the proceeds of the goods; and' this, without stint or limit. Suppose he had sold every article in the store, the next day-. Could Lang call back the goods? Certainly not; for he had given Lee express power to sell. As a security then, this deed was nought. What other possible purpose could it have, than to "delay, hinder or defraud" the creditors of Lee? The reason of Edwards v. Harben; Hamilton v. Russell, &c. applies strongly to this case. 'Possession in the vendor, after, an absolute deed, is fraudulent, because it is incompatible with the avowed purpose of the deed. So here, the possession and power of sale are fraudulent, because it is incompatible with the avowed purpose of the deed. In Lavender v. Blackstone, 2 Lev. 146; 3 Keeb. 526, it was held by the King's Bench, that a conveyance by an insolvent debtor in trust to pay debts, was fraudulent, because, among other things, it had a proviso enabling the grantor to make leases for any term, wdth-out rent; and this was considered as putting it in his power to defeat the whole settlement. For though the consent of the trustees was necessary, yet they were trustees of his own nomination. In Tarbeck v. Menbury, 2 Vern. 510, the defendant made a conveyance of his estate to trustees, to the use of himself for life, and with power to mortgage the same, remainder to trustees to sell and pay his debts. The keeper held the deed fraudulent, because the defendant having reserved to himself a power to mortgage, and charge the estate with what sums he thought fit, he might have charged it to the full value, which amounted, in effect, to a power of revocation, and rendered it fraudulent against creditors. In these cases, we find it explicitly laid down, that a power retained by the grantor, enabling him to defeat the provisions of the deed, renders it fraudulent and void. In Riggs v. Murray, 2 Johns. Ch. Rep. 565, the Chancellor, speaking of a deed with a power of revocation, says, "The necessary inference seems to be, that it was made to delay, hinder, or defraud, creditors. Family settlements may often require such powers of revocation, to meet the ever varying interests of family connexions; but it is difficult to perceive a proper motive in a debtor, who means nothing more nor less than the payment of a debt, to reserve in the very instrument of assignment, a right to recall the payment. The only effect of such an assignment, is to mask the property. If tolerated, it would become an inlet to fraud, and lead to all imaginable abuse." "The law is so jealous on this subject, *that if a deed contains a power in any way equivalent in its effects, to a power of revocation, it is fatal." I know that the case, from which I quote these extracts, was reversed. But I do not understand it to have been on this point; and the extracts seem merely a declaration of the settled law on the subject. All the cases concur in the position, that if the power retained, enable the grantor to defeat the provisions in the deed, it is null and void; and this, upon the known principles of the common law, of which, the statutes on the subject of fraud, are merely declaratory.
Now, can we imagine a power more completely adequate to the destruction of the avowed purpose of the deed, than that retained by the grantor in this case? The goods, the identical articles of merchandize, constituted the sole security provided by the deed, for the payment of the debts; and yet the debtor, while affecting to devote the goods to that purpose, retains the possession, the use, the power of selling every article, to whom, in what manner, and on what terms he pleases. He is to account though, if called on. But is this more than a personal accountability? The goods are gone. You cannot follow them. The money received for them has no ear mark. You cannot follow it, though the grantor pay it away the moment after he receives it, in satisfaction of his own debt. What are you, then, after all, but a general creditor? To this purpose, the case of Ryall v. Roll, 1 Atk. 165, is very strong. That, it is true, was a case under the bankrupt acts, and they are particularly strong and high toned on these subjects; especially 21 James 1. Yet the quotations I shall make, do not seem so much founded on them, as deduced from the principles of the common law. Justice Burnet said,, "if this were the case of a pawn, there might be some doubt; the pawn is complete by the delivery. But on a conditional or absolute sale, the sale is complete by the.contract, and the party is entitled to a delivery of the goods, as soon as he has paid the price. If, therefore, *a conditional vendee pays money, and does not insist on a delivery of the goods, he confides in the credit of the vendor, and not in any real or particular security; and ought to come in under the commission, as much as any other person that places a confidence in the bankrupt, and not in any other security." In the same case, Lord Hardwicke says, "where the vendee leaves the goods bought, in possession of the bankrupt, he confides as much in his general credit, as that creditor who has taken only a bond or note. In such cases, the bankrupt had it in his power to sell all the goods the next hour;, and the vendee or assignee could not claim them from the buyer, but could only have a personal remedy against the bankrupt." There is another case, the principles of which, I think, strongly apply to this. It is Bamford v. Barron, 2 T. R. 594, in the note. The sheriff had taken goods on an execution against Hays. The defendant seized them, as having the legal title. The sheriff .discharged the execution, and brought trover for the goods. The defendants claimed as trustees, under an assignment made by Hays, the debtor, dated 16th August, 1786, (prior to the execution,) for the benefit of such of his creditors, as would sign a deed of compromise, in a given time; notice whereof had been published in the country papers. The answer of the plaintiff to this was, that it was agreed that Hays should continue in possession, till May, 1787; he accounting for the profits to the parties; that he accordingly con tinued in the visible possession of the goods, after the assignment, and therefore, the transfer was void. To this, the defendants replied, by shewing an undertaking of Hays, to account to the trustees for all the profits of the trade, from the date of the assignment. The plaintiff contended, that neither that undertaking, nor the notice in the papers, was sufficient to shew the change of property; and, therefore, the transfer was void, by the assignor's continuing in possession. The King's Bench, after argument before them, unanimously agreed, that the assignment was fraudulent and void. Compare the cases. Here Lee continued in possession, precisely as before, selling the goods, the visible owner to all the world; and though there was a deed, that in fact gave no notice; for it was held up, and never committed to record, till upwards of seven months after the transaction, and the day before the plaintiff commenced this suit; and though this holding up does not, of itself, constitute fraud, (as the deed was recorded within eight months,) yet, where there are so many other badges of fraud, it has some weight in fixing the character of the transaction. It aided considerably the purpose of presenting Lee to the world, as the owner of the goods.
My opinion is, that the deed from Lee to Lang was fraudulent and void, as to creditors; and, on both grounds, that the decree of the Chancellor should be affirmed.
JUDGE COALTER:
I think the decree in this case may be supported on two grounds.
Lee, a total stranger in Baltimore, accompanies Lang to that city, in the fall of the year 1818, for the purpose of purchasing goods.
In March preceding, he had purchased goods of Lang, and gave his bond for $2000; the price subject to a credit for $335 66, for leather returned. This was payable the 1st of May thereafter. In that month, he purchased other goods of Lang, to the amount of $1620 69, for which, on the loth of August, 1818, he gave two obligations, payable on demand, endorsed that they were for goods purchased in May preceding. These goods had been badly laid in, as well as to selection, as prices: and would, therefore, not ^command the money for which they were sold. It does not appear, that Lee owned any other property, except a moiety of the schooner Fanny. He was then indebted to Lang in. these several sums, when they went to Baltimore. Lang was well known there as a merchant, and introduces Lee in such a way, as to procure him a credit, or credits, to the amount, in all, of about $2500. Was he entitled to such credit, and would Lang have extended it to him himself? I think not. He was then indebted to Lang $3285, which he was unable to pay,, as he says, and as Lang well knew. He had hopes, by getting more goods, and being- permitted to trade on them, that his profits would enable him to pay his debts. The subsequent conduct of Lang proves, that he knew that this was his situation; and, at all events, he knew that he owed him a large sum, of which he had paid no-part; although it had been due a considerable time. These facts he concealed, when he introduced him. Nay, as I understand, he laid out certain portions of the goods, as for himself, for which Lee alone gave acceptances; and soon after their return, actually received about $500 worth of the goods, thus in fact purchased for himself by Lee, and thus far, and in this way, received payment from Lee, of his debt; and furthermore, (and which shews his knowledge of Lee's situation, as early as March, 1819,) he procures the deed of trust to be executed to Browne, on which his claim is now founded, for the moiety of the schooner, and the whole of the goods on-hand. This, however, would totally have frustrated Lee's expectations of trading on. these goods, and by their profits paying his debts, had not Lang agreed to such terms, as would enable Lee, at least for eight months, to continue his trade, as if nothing of the kind had taken place. The deed, consequently, permits him to go on and sell the goods, as if no such deed existed; to manage and receive the profits of the schooner, and to be accountable for both, if required. The deed is accordingly held up, and not put on the records, nor was the property delivered to the trustee. On the contrary, *Lee is not only selling, but adding to his store. For, in 1819, and, I presume, after the deed, (though no date is given) he purchases, on credit, further goods in Baltimore, to the amount of about $557.
All these circumstances convince me,, that Lang procured Lee a credit in Baltimore, under a hope that he would thereby be enabled to pay off the debt due to him, which he considered desperate; and it is of no consequence, whether his views and Lee's were the same, to wit, that being enabled to get other goods and go on in trade, he would finally come out able to pay all his debts; or whether he intended to get a security on the identical goods. Lang seems finally to have combined, as far as he could, both views, by the deed of trust. In either view, however, and whatever his confidence may have been, in Lee's-honesty, and however well merited, he certainly intended, in this way, to get $500 of his debt paid at once, and to have a better-chance for the payment of the residue. Had Lee succeeded as he hoped, he might have paid all; but Lang had no right to-better his own prospects of payment, by-throwing a risque on others, without a fair-disclosure of what he knew of Lee's situation, and his own, in relation to him. Had this been stated, the credit would not have been obtained; and the $500 of goods received, and the deed of trust, are full proof of the reasons, why this disclosure was not made.
I think, therefore, on this ground, that he has no title to the aid of a Court of Equity.
But, as at present advised, I am also of opinion, that the first ground, taken in the decree of the Chancellor, is correct. For, what fair purpose, can a man take a deed of trust on all the goods in a merchant's store, expressly stipulating, that the goods are to remain in his possession, until called for by the trustee, and he empowered to make sale of them, and merely rendering him accountable to the trustee? Even if the deed had been instantly recorded, would it import to the world any thing of greater validity, *as a lien on the goods, than an instrument of writing, whereby a merchant agrees that he owes a given sum, and engages to apply all the net gains of his sales, after his support and reasonable expenses, to the payment of that creditor, and if the debt is not paid by a given day, that he will deliver the goods remaining on hand, to B. to be sold to pay the debt? Would not the creditor here trust solely to the honesty of his debtor, to do what he had promised? He might pay other debts with the money; purchase other goods with it; or in any other way, violate his promise. Suppose this instrument recorded, and known to the whole world; would it prevent another creditor, having express notice of it, from receiving payment of a debt due to him from the merchant, even from monies which he knew to arise from the sale of those goods? Or if he takes goods in discharge of his debt, is he in a worse situation than if he had received payment by monies in the drawer?
It would be readily admitted, that all the purchasers of goods would not have to see to the application of the purchase money, to the discharge of the debt so secured. But it may be said, that another creditor, having knowledge of this supposed lien, knows that a payment to him is a misapplication of the purchase money, and it will be a fraud in him to receive it. But if there is a lieu on the goods themselves, before they are taken possession of by the trustee, must not every one see that the trustee or creditor gets the money? The question then is, does the title pass to the trustee, in such case, before he gets possession? If it does pass before, then by what right does the merchant continue to sell the goods? We are told he sells merely as factor or agent; and that if a man, knowingly receives a debt due to him by a factor or agent, out of the goods or monies of his principal, it will be a fraud, and he will be liable to the principal. But here there has been no absolute sale of the goods to the creditor or his trustee; no price agreed on; no change of the name of the owner of the store or books; no *one act which attends a sale of the goods; and the store is now conducted for the purchaser. In fact, the original owner remains in possession, sells for himself, and on his own account, takes on himself all had debts, and to every intent and purpose, is owner, at least until his possession is disturbed, and the goods taken from him by the trustee. Now, though a subsequent deed of trust, accompanied by a delivery of possession to the trustee, might not be such sale as was contemplated by the first deed; yet has any title passed by that deed, until the trustee therein gets possession, which will prevent any bona fide creditor from procuring a proper lien on the property so situated? In other words, are not the covenants in the deed, so entirely opposed to the notion of a security, (any other than the party had in the honor and integrity of his debtor, so long as the goods remained in his possession,) as to oppose no obstacle to a subsequent incumbrance? The debtor might have sold the goods, and paid this last debt, and this payment would have stood good, as all will admit, unless the creditor had notice that the monies, so received, arose from the sale of these goods. The first incumbrancer trusts them, not to his lien on the goods, until his trustee gets them; but to the integrity of the debtor, and that he will not deprive him of the fund. In this situation, it appears to me, his lien is on the conscience of his debtor, not on his goods. This will not be permitted.
The debtor continues owner or not, of his goods, at the election of one creditor; and thus others are embarrassed in their remedies, and ultimately defrauded; and, therefore, such deed, it at present seems to me, must be considered as void per se. Had the trustee, Browne, taken possession of the goods before the second deed of trust, it might have been another matter, or before a judgment recovered against Eee, in case of a judgment creditor. This was not done. Such act of taking possession might, from its date, have purged the deed of its original vice, by discharging it of that condition, which rendered the lien *abortive. This deed it not like a mortgage, which stipulates that the mortgagor may remain in possession and receive the profits. There the title to the property itself remains in the mortgagee. Here no profits can arise, except by the sale of the goods; and a power to sell, so long as it continues, likens the case to, or makes it stronger than, that of an absolute deed, the vendor remaining in possession; for that is compatible with a trust that the property shall remain unchanged, and continue the property of the purchaser.
In the present case, therefore, and so far as it regards the deed and delivery of the goods to Henley, I think the creditor under the first deed must be postponed to him under the second.
JUDGE CABELL:
When one person requests information from another, concerning the circumstances of a third, for the purpose of determining whether that third person be trust-worthy or not, he from whom the information is sought, may, if he please, decline giving any information whatever. But if, knowing the object of the enquiry, he professes to give information at all, he is, in the language of Lord Kenyon, Eyre v. Dunsford, 1 East. 318, "bound in justice and in common honesty, to give a fair representation of what he knows. This obligation to make a fair representation, necessarily excludes the right to withhold any known fact, material to the formation of a correct opinion. The suppression of such a fact is equal to the suggestion of a known falsehood."
This principle is clearly applicable to, and decisive of, the present case.
Lang did not wait to be called .on. He volunteered his information, for the purpose of obtaining a credit for Lee; but he concealed the important .fact, that Lee was at that moment indebted to him more than he was worth. *Had this fact been communicated, it is very probable that the credit would not have been given. However that may be, it was a fact which, in common honesty, he ought to have made known.
Independently of the general conclusion of law, that the suppression of such a fact was fraudulent, in relation to those who are injured by it, Lang's subsequent conduct affords abundant proof, that in concealing it, he was influenced by an intent to deceive and defraud.
On this ground, I am for affirming the decision of the Chancellor.
As to the other point, that the deed under which Lang claims, is fraudulent per se, it is one on which I feel some difficulty; and as it is certainly one of great importance, and not necessary to be decided in this case, I purposely abstain from giving any opinion on it, that the question may be considered open for discussion, whenever it may again occur, before a fuller Court.
Absent. the President and Judge Green: the latter of whom decided the cause as Chancellor.
I would not lie understood to impugn the doctrine so well established, and applicable to the common case of mortgages and deeds oftrust. that possession is no evidence of fraud, where it follows the deed, and is consistent with its purposes. My remarks, indeed, have been made to little purpose, if they have not shewn the wide difference between such cases and that at bar. — Note in Original Edition.