Case Name: Harcrow v. Gardiner
Court: Arkansas Supreme Court
Jurisdiction: Arkansas
Decision Date: 1900-03-24
Citations: 69 Ark. 6
Docket Number: 
Parties: Harcrow v. Gardiner.
Judges: The Chief Justice and Wood, J., concur.
Reporter: Arkansas Reports
Volume: 69
Pages: 6–23

Head Matter:
Harcrow v. Gardiner.
Opinion delivered March 24, 1900.
Public Policy — Illegal Agreement. — The illegality of an agreement between two partners in forming the partnership that the business should be carried on in the name of one of the partners only In order to deceive the creditors of the other partner will not affect with illegality a note subsequently executed by the former partner to the latter in settlement of the partnership business.
Appeal from Pulaski Chancery Court.
Thomas B. Martin, Chancellor.
STATEMENT BY THE COURT.
Action in equity upon the following note, and to enforce a vendor’s lien upon the lands therein described.
“$9,000.00. Lanabk, ARK., July 19, 1893.
“One day after date I promise to pay to the order of J. C. Har-crow the sum of nine thousand dollars for property,.to-wit, two lots on 13th and Battery, in the city of Little Rock, one lot on 6th and Wolf streets, ten acres adjoining Valentine’s addition, 80 acres known as the Hough place,’ 60 acres known as ‘W. H. Wheeler place,’ 40 acres known as the “Martindale place,’ 40 acres known as the ‘Turner place.’
[Signed] “E. Harcrow.”
The defense set up was want of consideration, and further that the note was part of a .scheme to defraud the creditors of J. C. Har-crow. The facts appear in the opinion. The chancellor found against the defendant, and gave judgment accordingly. Erom this judgment the defendant appealed.
F. T. Vaughan and James H. Stevenson, for appellant.
The evidence does not show that J. G. Harcrow ever advanced any money to appellant. The “release” offered in evidence was genuine, and the chancellor erred in his finding to the contrary. On the right of witnesses to testify as to genuineness of signature, upon comparison and by memory, see 7 La. 95; 30 H. J. Law, 387; 8 Ark. 155; 5 McLean, 186; Laws. Exp. Ev. 317; 11 Ala. 855; 5 Neb. 248; 3 Jones’ Law, 310: 41 N. Y. Snpp. 6; 82 N. Y. 52. The findings of the chancellor as to the facts being against the evidence, the case should he reversed. As to difference between chancery cases and jury trials in this respect, see: 34 Ark. 212; 31 Ark. 85; 41 Ark. 292; 42 Ark. 521; 15 Ark. 209; 23 Ark. 341; 43 Ark. 307. There could be no lien in favor of J. C. Harcrow, because:
(1) -An express lien by parol would contravene the statute of frauds. 25 Miss. 88.
(2) No lien by subrogation could exist, because: (a) The elements of subrogation are wanting. 2 Beach, Eq. § 868; Bisph. Eq. 335; 13 Oh. 148; 14 Ill. 468; 25 Miss. 88; Perry, Trusts, § 238; 163 Pa. St. 609; 1 Am. & Eng. Dec. in Eq. 472, 505 n.; 2 Beach. Eq. § 801; Jones, Liens, §§ 73, 1067; 1 N. Y. 586; 18 Ark." 142; 10 Ark. 411; 4 Lea, 216; 10 Heisk. 522; 16 La. Ann. 292; 5 Rob. 204; 86 Pa. St. 409; 56 Pa. St. 76; 38 N. J. Eq. 105; 14 N. J. Eq. 235; 61 Ala. 108; 3 Ala. 302; 25 Ark. 133; 44 Ark. 504; 47 Ark. 118; 50 Ark. 109. The fraud in the original transaction precludes any sub-rogation. 2 Beach, Eq. § 819; 38 Ala. 625; 81 N. Y. 394; 4 Dill. 207; 33 Kan. 90; 117 Ill. 145; 53 Ark. 271; Sheld. Sub. §§ 42, 44; Harr. Sub. § 813; 94 N. Y. 82; 105 N. Y. 539.
(3) There never having been a sale of the property, J. 0. Harcrow had no vendor’s lien in his own right. 2 Jones, Liens, § 1066 ;-121 Ill. 191. If we assume that there was an advancement, the evidence shows strong badges of fraud on J. C. Harcrow’s part. Bump, Er. Con. §§ 46, 49, 51, 53, 63. There could be no resulting trust in favor of J. C. Harcrow because of the fraud on the creditors. 17 So. 185; 4 Barb. 425; 6 Oh. St. 52; 2 Dev. Eq. 497; 19 N. J. Eq. 546; 26 Ind. 319; 1 Beach, Tr. § 125, p. 155; 1 Beach, Eq. § 217, p. 244; 1 Perry, Tr. § 151, p. 181; 10 Am. & Eng. Enc. Law, 57, 58; 50 Mo. 572; 4 Halst. 891; 10 Am. & Eng. Enc. Law, 14. To raise such a trust there must have been an advancement of a definitely ascertained amount at the time of the purchase of the property and with the'intention of raising such a trust. Tied. Eq. § 311; 1 Beach, Eq. 217, 219; 30 Ark. 230; 29 Ark. 612; 32 Miss. 190; 27 Ark. 89; 2 Paige, Ch. 217; 10 Am. & Eng. Enc. Law, 5, 8, 12, 13 and 14; 9 Ark. 529; 21 Md. 32. The evidence of these facts must be clear and convincing. Tied. Eq. Jur. § 311; 27 Ark. 89; 2 Paige, Ch.217; 5 Johns. Ch. 18,19; 1 Beach, Eq. § 224; 81 Va. 152; 15 Oh. 148; 19 la. 362; Perry, Tr. § 137; 19 N. J. Eq. 549; 44 Ark. 365; 114 Ill. 554; id. 636; 21 Md. 328; 10 Am. & Eng. Enc. Law, 23, §§ 11, IS, 13, 14, 16 and 17. The fraud bars recovery on the note. Equity refuses to grant relief to either party to an executory contract to defraud creditors. 26 Ark. 317; 52 Ark. 171; 10 Ark. 54; 11 Ark. 411; ib. 475; 19 Ark. 650, 659; 26 Ark. 316; 47 Ark. 301; Bump, Fr. Con. § 432; 11 Ill. 300; 50 Am.'Dec. 460, 469 n; 29 Ill 524; 45 id. 23; 3 Mass. 378; 23 N. J. Eq. 60; 15 Am. Dec. 596, 600; 38 id. 578. No recovery can be had upon a note given as the consideration of a fraudulent transfer. 33 N. J. Law,.318; 20 Wend.'37; S. C. 4 Hill, 424; 9 Dana, 318; 21 Ill. 152; 10 Me. 71; 3 Paige, Gh. 154; 49 Mass. 269; 3 Dana, 540; 1 Oh. St. 262; 126 Ill. 525; 8 Cush. 525; 58 Barb. 390; Wait, Fr. Con. 395; 25 Mo. 165; 1 M. & W. 159-166; 2 Dans. 103; 10 Barb. 369; 34 S. W. 755; 65 Tex. 499; 65 Tex. 217. This principle extends to the personal representative of the fraudulent grantor. 19 Ark. 659; 4 Ark. 173; 13 Ark. 593; Bump, Fr. Con. § 433; 11 Ill. 300; S. C. 50 Am. Dec. 460, 469, note; 42 Am. Dec. 168. The statute of 1895 (Laws 1895, pp. 165-6) does not apply, so as to authorize the administrator to bring this suit, because that statute includes only transfers of realty. The statute, being in derogation of common law, will not be extended by implication. Suth. Stat. Const. § 400; 78 Ala. Ill; 50 Miss. 517; 56 Barb. 51; 77 N. Y. 36; 3 Den. 220; 85 Ill. 197; 3 Barb. 341; 38 Miss. 118; Suth. Stat. Const. § 208; 44 Miss. 322; 21 N. Y. 148; 46 Me. 377; 4 W. Ya. 383; 87 Pa. St. 253; 5 Mich. 98; 6 ib. 242; ib. 17; 20 Wend. 181; ib. 555; 20 Johns. 361; ib. 342; 3 Cow. 59; 5 Hill, 461; 1 Barb. 185; 6 Hill, 149; 7 ib. 431; 3 Den. 601; 3 N. Y. 396; 31 Mich. 431; 18 Ga. 333. Nor can the act be construed retrospectively. 11 Wis. 371; 39 Miss. 364; Suth. St. Const. §§ 463, 464; 6 Ark. 484, 493; 56 Ark. 485, 495; 1 N. Y. 129; S. C.'l Den. 128; 6 Hill, 149; 33 Gratt. 677; 58 Barb. 176; Wade, Ret. Laws, 34-5-6; 7 tJohns. 504; 17 Hun. 457; 46 Mich. 278; 20 id. 398; Sedg. St. Con. 160; Cooley, Con. Lim. 455; 26 Ark. 127; 15 Wis. 548; 1 Black, 459.
Z. T. Wood and W. S. & F. L. McCain, for appellee.
If J. C. Harcrow furnished the money to buy the land, he would be entitled to a lien without any express agreement. 40 Ark. 62. If the parties intended by the note that J. C. should have a lien, equity will effectuate that intention. 51 Ark. 433; 60 Ark. 598; 52 Ark. 441. The act of 1895 applies to authorize the administrator to sue. 58 Ark. 117; 43 Ark. 156; Sch. Ex. and Adm. § 320. A release must have a consideration. 31 Ark. 728; 33 Ark. 572 ; 40 Ark. 182. Re-delivery oí the note was essential to make the release good as a gift. 2 Kent’s Comm. 438; 60 Ark. 169.

Opinion:
Riddick, J.,
(after stating the facts). This is an action by the administrator of the estate of J. C. Harcrow against Elbert Harcrow to recover judgment upon a promissory note for the sum of nine thousand dollars, and to declare the same a lien upon the land described in the note.
The first contention of the defendant is that there was no consideration for the note. He states that his brother, J. C. Harcrow, during his last sickness was living with one Sallie Smith, a woman with whom he had sustained immoral relations, and by whom he had illegitimate children. His brother, so defendant testified, said to him that the woman was annoying him by insisting that he should make some provision for her and her children, and that, at the urgent request of his brother, and to appease the woman, this note was executed, under a promise that his brother would in a few days return the note. In a day or two afterwards he called upon his brother, and asked for the note. His brother requested the woman to get it, and give it to defendant, but it had been mislaid, and could not then be found; so, instead of returning the note, his brother executed to him a receipt in writing, stating that he had received payment of the note in full. This is his story, and there is much other evidence bearing on this point, but we need not discuss it. The questions as to whether this note was without consideration, and whether the receipt purporting to be signed by J. C. Har-crow was genuine or forged, were submitted to the chancellor, who found against the defendant, and we can by no means say that this finding is clearly against the weight of evidence. If defendant be injured by such finding there is little ground for sympathy, for by his own confession this note was executed as a part of a scheme to deceive a wronged and ignorant woman. If this be true, and he is compelled to pay the note, it is a case of one caught in his own trap. But we do not believe that any mistake was made. At the time this note was executed, J. C. Harcrow, besides these illegitimate children, had, living in the same county, a lawful wife and child. As this fact was well known, it is not apparent why the execution of this note to him should have been regarded by Sallie Smith as a provision for her or her children. It does not appear that the attempted return of the note, of which defendant testified, was kept secret from her, nor why the possession of it for only a brief time would have tended in any way to shield the brother of defendant from her importunities. In fact, the whole story of the defendant in reference to the execution of the note and the written release seems to us unreasonable and improbable. It is in conflict with the facts stated in the amendment to his answer, in which he alleged that the land for which the note purports to have been executed was purchased by defendant and J. 0. Harcrow jointly, and the title taken in the name of the defendant for the purpose of covering up the interest of J. C. Harcrow in such property and defrauding his creditors. After considering this amendment in connection with the other facts in proof, we have very little doubt about the correctness of the finding of the chancellor on this point, and it must stand.
The facts in this case, as we see them, can be briefly stated. -About 18S1 the defendant and his brother commenced the mercantile business together as partners at Lanark in this state. J. C, Harcrow had previously failed in business, and this new business venture was carried on in the name of the defendant, Elbert Har-crow. The capital they invested in it was no doubt small, but the business prospered, and after some years the firm had a surplus of money on hand. This money was from time to time invested in land for the benefit of the firm, and the title taken in the name of Elbert Harcrow, that, as before stated, being the name in which the business was carried on. In this way after some ten or twelve years the whole or nearly all of the firm's assets were converted into land. In 1893 J. 0. Harcrow was stricken with consumption, and, knowing that the end of life was approaching, he sent for his brother, and they had some kind of a settlement of their partnership affairs, and the note upon -which this action is based was given by the defendant to his brother for his share of the partnership assets, which, as before stated, consisted mainly, if not altogether, of land. The note on its face purports to have been executed for 'certain tracts of land therein described, they being, as we think, that portion of the firm's assets allotted to J. C. Harcrow in the settlement.
The contention is made that, under these facts, the action cannot be maintained, because, it is said, the property was conveyed to the defendant for the purpose of defrauding the creditors of J. C. Harcrow. The question as to whether one who sells property to another for the purpose of defrauding his creditors can maintain an action on a- note given by the vendee for the purchase money has been much discussed by the courts of the different states. Quite a number of them hold that such actions cannot be maintained, and that view has been, approved by this court. Payne v. Bruton, 10 Ark. 53; Nellis v. Clark, 20 Wend. (N. Y.), 24; Nellis v. Clark, 4 Hill (N. Y.), 424; Church v. Muir, 33 H. J. Law, 318; Davis v. Sittig, 65 Texas, 499; Norris v. Norris, 9 Dana (Ky.), 317; note to Whitworth v. Thomas, 3 Am. St. Rep. 727.
On the other hand several of the ablest courts hold, under statutes similar to ours, that by the terms of the statute such contracts, though void as to creditors, are valid and binding between the parties. Stillings v. Turner, 153 Mass. 534; Still v. Buzzell, 60 Vt. 478; Harvey v. Varney, 98 Mass. 118; Carpenter v. McClure, 39 Vt. 9; Dyer v. Homer, 22 Pick (Mass.), 253; Cary v. Jacobson, 55 Miss. 204; Butler v. Moore, 73 Me. 151; Davy v. Kelley, 66 Wis. 452; Winton v. Freeman, 102 Pa. St. 366.
But, while the discussion of this question by the various courts furnishes an interesting chapter in the history of our jurisprudence, we do not see that it arises in this case. The ground upon which the courts which refuse to enforce such contracts base their decision is that such contracts are forbidden by law and illegal. But we are not asked in this suit to enforce an illegal contract. The note upon which this action is based was given by one partner to another in settlement of their partnership affairs. If we concede that when this partnership was first formed it was agreed that the business should be carried on in the name of the defendant in order to deceive the creditors of the other partner, that would be no defense here, for this is not an action upon the partnership agreement. The illegality, if any, consisted in such prior agreement, not in the partnership business, nor in the settlement between the parties by which they undertook to divide the partnership assets, and therefore it is no defense to the enforcement of the subsequent contract based on such settlement. This question was considered by the High Court of Chancery of England in the case of Sharp v. Taylor. The parties were British subjects and owners of a ship which, in violation of an act of parliament, they had registered in the Hnited States in the name of a citizen of this country as an American vessel, in order to evade the registry laws of England. The plaintiff brought an action for an account, and the defendant among other defenses set up that the plaintiff's claim was in violation of law. But Lord Cottenham, after remarking that the plaintiff was not asking to enforce any agreement adverse to the act of parliament, nor seeking compensation for an illegal voyage, proceeded as follows: "Can one of two partners possess himself of the property of the ñrm, and be permitted to retain it if he can show that in realizing it some provision or some act of parliament has been violated or neglected? The answer to this will be that the transaction alleged to be illegal is completed and closed, and will not be in any manner affected by what the court is asked to do between the parties." Sharp v. Taylor, 22 Eng. Ch. 801.
Though these words of the Lord Chancellor have been often quoted with approval by the courts of this country, including the Supreme Court of the United States, they have not escaped criticism, either here or in England. Sir George Jessel, speaking of this case in Sykes v. Beadon, 11 Ch. Div. 170, while not denying that the judgment of the Lord Chancellor was correct, criticised the language used as being broad enough to include illegal partnerships of all kinds. But this criticism of the Master of the Rolls does not weaken the case of Sharp v. Taylor as an authority for the position we take here, for the partnership between J. C. Harcrow and the defendant was not an illegal partnership.
If this partnership had been formed for the purpose of carrying on a gambling house, or for the sale of intoxicating liquors without a license, or for any other illegal and prohibited business, a very different question would be presented; for then the case would come within the rule asserted with so much force in Sykes v. Beardon, that courts will not interfere or assist in dividing the proceeds of an illegal business or transaction. The evidence shows, nothing of the kind here. The partnership was formed for the purpose of keeping and carrying on a small country store, a business neither immoral nor illegal. And, although one member of the firm kept from the public his connection with the firm, remaining a secret or silent partner, that did not render the firm's business illegal, even if we admit that the object was to avoid an attachment by his creditors, for this was only an incident, and not the main purpose of the partnership. The cases cited below show, we think, that, had there been no settlement between the parties, and no note executed, the courts would have sustained an action against the defendant to compel him to account for the partnership assets in his hands. If this be so, there is no reason, when the partners themselves have made the settlement, why the note executed in pursuance of such settlement should not be enforced, nothing appearing to indicate mistake or unfairness in the settlement. Sharp v. Taylor, 22 Eng. Chan. 801; Brooks v. Martin, 2 Wallace (U. S.), 70; McBlair v. Gibbes, 17 Howard (U. S.), 232; Harvey v. Varney, 98 Mass. 118; Wilson v. Owen, 30 Mich. 474; Gilliam v. Brown, 43 Miss. 641; 1 Bates on Part. § 122; 2 Pomeroy's Eq. (2 Ed.) and note to § 940.
There is another ground on which we think the contention of the defendant on this point must fail. The evidence, as we have stated, shows that J. C. Harcrow failed in business about 1880, but it was nine or ten years afterwards before the land was purchased by the firm. The defendant himself testified that the old debts against J. C. Harcrow were barred by limitation, and at the time of his death in 1893 he seems to have been comparatively free from debt. Whether there were valid and subsisting debts against him at the time the firm purchased this land, the evidence does not show. Even if we should adopt the view contended for by appellant, it seems that the evidence on this point is not sufficient; for, if defendant is to be allowed to retain land owned by his brother without paying for it, on the ground of fraud against third parties, such fraud should be clearly established, and, unless J. C. Harcrow owed debts at the time this land was purchased, no fraud is shown.
Our attention has been called to the act of 1895, passed after the commencement of this action, authorizing an administrator of a fraudulent grantor to bring suit to set aside the fraudulent conveyance, but, as we have concluded that this action can be maintained regardless of that act, we need not notice the discussion in reference to the same.
We have given due attention to the cases collated in the able brief filed by counsel for appellant, but we are unable to adopt their views as to the proper disposition of the case. Our conclusion is that the judgment of the chancellor is right, and it is therefore affirmed.
The Chief Justice and Wood, J., concur.