Court Opinion

ID: 6676982
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:16:54.282018+00
Date Added: 2024-06-11T16:00:43.887958
License: Public Domain

dissenting. This case may be considered in two aspects : 1st, that presented by the demurrer. 2nd, that presented by all the pleadings and the evidence. In either aspect, it seems to me clear that the action cannot be maintained.
In 1 Pomeroy Equity Jurisprudence, sec. 401, the principle is laid down in the following words: “Whatever be the nature of the plaintiff’s claim, and of the relief-which he seeks, if his claim grows out of, or depends upon, or is inseparably connected with his own prior fraud, a Court of Equity will, in general, deny him any relief, and will leave him to whatever remedies and defences at law he may have.” For example: “If a contract has been entered into through fraud, or to accomplish any fraudulent purpose, a Court of Equity will not, at the suit of one of the fraudulent parties — a particeps doli — while the agreement is still executory, either compel its execution of decree its cancellation, nor, after it has been executed, set it aside, and thus restore the plaintiff to the property or other interests which he had fraudulently transferred. Equity will leave such parties in exactly the position in which they have placed themselves, refusing all affirmative aid to either of the fraudulent participants.” This salutary and most wholesome principle has been fully recognized both by the courts of law and equity in this State (Broughton v. Broughton, 4 Rich., 491; Arnold v. Mattison, 3 Rich. Eq., 153), and may now be considered too well settled to admit of dispute.
The practical inquiry, then, is, whether this case falls under that well settled principle; and as the question is presented by a demurrer to the complaint, the inquiry is narrowed down to the question, whether the plaintiff’s case, as stated in his complaint, falls within the principle above stated. Inasmuch as the complaint will doubtless be fully set out in the report of this case, it will only be necessary here to state, in general terms, the allegations of the complaint, which are substantially as follows: that *539many years since, prior to the late war between the States, the plaintiff and one F. L. Smith formed a copartnership in the coach-making business, under the name of Smith & Jones, of which there was no actual dissolution until the death of Smith, although, for many years prior thereto, the active operations of the firm had been discontinued, and the same practically existed in name only ; that during the existence of the partnership, a considerable amount of property was accumulated in the firm name; that at the close of the war, the said firm was considerably embarrassed with debt, “besides which, the plaintiff W'as apprehensive of embarrassment personally on account of claims outstanding against him, mostly as surety for others; that in order to facilitate the adjustment of the affairs of the said firm of Smith & Jones, and in order that the property of the said firm of Smith & Jones should not be embarrassed by the existence of the indebtedness then outstanding against the plaintiff herein in his own right, the plaintiff, on the 2nd day of October, A. D. 1868, under his hand and seal, conveyed to the said F. L. Smith his undivided moiety and interest” in the several lots of land which constitute the subject of this action ; that notwithstanding said conveyance, “the use, occupation, enjoyment, and ownership” of said property “were in no wise changed or affected thereby,” * * * “and it was fully and distinctly understood and agreed that said interest or moiety was to be reconveyed to this plaintiff upon the completion of the adjustment of the affairs of the old firm of Smith & Jones” ; that it was distinctly understood and agreed between the plaintiff and said F. L. Smith, “that the use„occupation, enjoyment, and ownership of said pi’opc-rty” were to be in no wise affected by said conveyance, and that with such agreement the said F. L. Smith remained perfectly satisfied up to the time of his death, and frequently expressed his willingness to reconvey to the plaintiff; that up to the time of his death, said F. L. Smith repeatedly acknowledged the joint ownership of the plaintiff with himself in said property; that after the execution of said conveyance, the plaintiff, with the full knowledge and approval of said F. L. Smith, has exercised various acts of ownership over said property; that all the claims in favor of and against Smith & Jones have been settled; that said F. L. Smith has departed this life, leaving a *540will, whereby he gave all his property to his widow, the defendant herein; that plaintiff has demanded of defendant- compliance with the agreement of said F. L. Smith to reconvey the said moiety of said property to him, which she refuses to do; wherefore judgment is demanded, that defendant may be required to reconvey to the plaintiff his moiety in all the property embraced in the conveyance above referred to, or that the same may be sold and the proceeds équally divided between plaintiff and defendant.
From this abstract of the allegations of the complaint, it seems to me plain that the plaintiff, by this action, is seeking to enforce the specific performance of a contract, one of the objects, if not the sole object, of which was to accomplish a fraudulent purpose. It cannot be denied that where a debtor makes a conveyance of his property with a view to defeat, delay, or hinder his creditors in the enforcement of their claims, equity will pronounce such a transaction fraudulent, even though it may appear that the debtor did not intend to commit any moral fraud, for the law will not permit a debtor to throw obstructions in the way of legal process, and thus hinder and delay creditors in the prosecution of their legal rights. Hence, even if it be assumed, as I am quite willing to do, that the plaintiff intended no moral wrong in making this conveyance, yet if it was prompted, by the apprehension, that, otherwise, his individual creditors would seize upon his interest in the property and subject it to the payment of their debts, the law will regard such a conveyance as fraudulent, and equity will afford no relief from its consequences.
That such was the purpose of the conveyance in question, it seems to me clear, from the plaintiff’s own statements of the motive which prompted it. I do not see what other construction can be placed upon the language used in the complaint, for, after setting forth the fact that the firm of Smith & Jones “was considerably embarrassed with debt” — not that its assets were insufficient for the payment of its debts — these words are added, “besides which, the plaintiff was apprehensive of embarrassment personally on account of claims outstanding against him, mostly as surety for others,” followed by the allegation, “that in order to facilitate the adjustment of the affairs of the said firm of Smith & *541Jones, and in order that the property of said firm of Smith & Jones should not be embarrassed by the existence of the indebtedness then outstanding against the plaintiff herein in his own right,” the conveyance in question was made. Now, while it is very easy to see how the transfer of the title to these lots by the plaintiff to Smith would throw an obstacle in the way of the individual creditors of the plaintiff, in subjecting the property conveyed, or the plaintiff’s interest therein, to the payment of their debts, and thus hinder and delay them in the prosecution of their claims, it is impossible to understand how such a conveyance would facilitate the adjustment of the affairs of Smith & Jones, especially when the plaintiff also alleges that it was distinctly agreed that the plaintiff’s moiety or interest in the lots was to be reconveyed to him “upon the completion of the adjustment of the affairs of the old firm of Smith k Jones,” for this allegation effectually excludes the idea that the plaintiff’s moiety was intended to be used in settling the debts of Smith & Jones, because, if so used, then the distinct agreement, that the plaintiff’s moiety should be reconveyed to him upon the completion of the adjustment of the affairs of Smith & Jones, could not possibly have been carried out.
In addition to this, if the lots in question were in fact partnership property, and, as such, primarily liable for the partnership debts, as the plaintiff in his argument claims, though there is a singular absence of any such allegation in the complaint, then it is very difficult, if not impossible, to conceive how the transfer of the title to such lots to one of the individuals composing the partnership, would tend to facilitate the adjustment of the affairs of the partnership. On the contrary, the tendency would be the other way. For, after such transfer, it would be necessary for the partnership creditors, in order to fix a primary liability on such property, to show that, although the title stood in the individual name of one of the copartners, yet in fact it was partnership property; whereas, before such transfer, no such showing would have been necessary, if in reality the title to the property originally stood in the names of the two partners jointly. It seems to me, therefore, that the inevitable inference to be drawn from the language of the complaint, is that the real object and *542true intent of the conveyance was to place the property, temporarily at least, beyond the reach of the individual creditors of the plaintiff, and if so, then, under the principle above stated, the complaint stated no such cause of action as a Court of Equity would recognize, and hence the demurrer should have been sustained.
The fact that there are no individual creditors of the plaintiff before the court complaining cannot affec.t the question, for the principle invoked does not rest upon the right of such creditors to obtain relief, but is founded upon considerations of public policy, which forbid a Court of Equity from lending its aid to relieve a person from a situation in which he has voluntarily placed himself in an attempt to accomplish a fraudulent purpose.
It seems to me, also, that there is another ground upon which the demurrer should have been sustained, to wit, that the complaint does not state facts sufficient to constitute a cause of action. Assuming all of the allegations to be true, the cause of action there stated is the refusal of the defendant to perform specifically a verbal agreement entered into by her devisor to reconvqy real estate conveyed to him by the plaintiff by a conveyance confessedly sham and prctensive; for what else can the allegation, repeated in various forms, mean ? that, notwithstanding the conveyance, it was distinctly understood and agreed that “the use, occupation, enjoyment, and ownership of the property” conveyed should be “in no wdse changed or affected thereby,” but should, in all respects, remain as before, followed by the allegation, that in accordance with the understanding, the grantee, up to the time of his death, acknowledged the joint ownership of the plaintiff. Such allegations are clearly not sufficient to sustain an action for the specific performance of a contract.
If, however, the case be considered in the aspect in which it is presented by the pleadings and evidence, it seems to me equally clear that the plaintiff cannot maintain his action. The case as made by the complaint, is nothing more nor less than an action for the specific performance of an alleged agreement by F. L. Smith to reconvej7 the property in question to the plaintiff “upon the completion of the adjustment of the affairs of the old firm of Smith & Jones.” Inasmuch as such agreement was distinctly *543denied -in the answer, and there was not the slightest evidence in writing of any such alleged agreement, and no evidence'of any such part performance as would take the case out of the statute of frauds, it is quite certain that the action could not be maintained as an action for the specific performance of an agreement to reconvey; and so I understand the Circuit Judge to hold. Indeed, leaving out the testimony of the plaintiff, which was clearly incompetent, as to any transactions or communications with the deceased, Smith, under section 400 of the Code, and so ruled to be by the Circuit Judge, without exception, it seems to me very difficult to find any, even parol, evidence of such an agreement. The most that can be said is that the acts and declarations of F. L. Smith did tend to show that he recognized the joint ownership of the plaintiff, and one of his declarations, testified to by plaintiff's witness, Schley, that he took the title from Jones for the purpose of screening it from the creditors of Jones, throws a flood of light upon the real object and intent of the conveyance, and shows it to have been exactly what Jones himself plainly shows by the allegations in his complaint.
The Circuit Judge, however, after holding that t-if this were a case originating between joint tenants or tenants in common, plaintiff’s case would fail because he could not be allowed to establish his claim by parol evidence.” proceeds to consider the case as if it were an action for a final settlement of the affairs of the original partnership by a sale of the lots of land embraced in the conveyance hereinbefore referred to as partnership property;, and holding that in such a case parol evidence would be competent to show that said lots were still partnership property, notwithstanding the conveyance of Jones’s interest therein to Smith as far back as 2nd October, 1868, reaches the conclusion that the evidence adduced established that fact, and ordered that said lots be sold and the proceeds be divided equally between plaintiff' and defendant.
Passing by the question of the right of the Circuit Judge, pending or after the hearing, to thus change the whole aspect of the case, as made by the pleadings (Dunsford v. Brown, 19 S. C., 560), and convert an action for the specific performance of a contract into an action for the settlement of the affairs of a partner*544ship, I propose to consider whether the decree can be sustained even under the aspect in which the case seems to have been considered below. To do this, it would be necessary for the plaintiff, amongst other things, to allege and prove that the lots in question were partnership property, and so continued to be up to the time of the commencement of this action. As has been said, the complaint contains no allegation — certainly no distinct allegation — that these lots ever were partnership property. The second allegation of the complaint is, “That during the existence of said copartnership, a considerable amount of property was accumulated in the firm name,” but there is no allegation as to what was the nature of such property — certainly none that these lots constituted a part of such property. The nearest approach to any such allegation is that found in the 4th paragraph of the complaint, in these words : “That in order to facilitate the adjustment of the affairs of the said firm of Smith & Jones, and in order that the property of said firm of Smith «f Jones should not be embarrassed by the existence of the indebtedness then outstanding against the plaintiff herein in his own right,” the plaintiff conveyed to said F. L. Smith, on the 2nd October, 1868, his undivided moiety or interest in the said lots.
Now. while the words italicized in the foregoing quotation might possibly, if admitted or proved, be sufficient to warrant the inference that the lots in question constituted a part of the property of the firm of Smith & Jones, yet all that portion of the complaint copied above is distinctly denied in the answer, and, so far as I can discover, there is not a particle of evidence to sustain the allegation made, only by implication in the complaint, that the lots were property of ’the firm. There is no evidence that they were purchased with partnership funds, or in any other way became partnership property. On the contrary, the only evidence is that they were owned by Smith & Jones in equal moieties, and there is not a particle of evidence tending to show how or when they were acquired, though if the plaintiff, as he claims, was the surviving partner, he must be presumed to have had it in his power to show by the deeds, or otherwise, whether they were acquired as partnership property; and this he made no attempt to do. In addition to this, in the conveyance, a copy of which is *545set out in the “Case,” these lots are not spoken of as partnership property, but the “undivided moiety and interest” of the plaintiff in certain lots, one of which is described as “now occupied" — not owned or formerly owned — by Smith & Jones, coach-makers.
But, again, even if the conclusion could be reached, that these lots ever were partnership property, they certainly lost that character nearly twenty years before this action was commenced. For we find in the “Case” a copy of a paper executed on the 1st day of October, 1868, whereby the plaintiff, one of the firm of Smith & Jones, “in consideration of one thousand dollars, to me in hand paid by F. L. Smith [the other partner in the firm above mentioned], and in further consideration that he, the said F. L. Smith, assume and hereafter pay the outstanding debts of the said firm,” sells and transfers to said F. L. Smith all his right and interest in and to all and singular the vehicles, finished and unfinished, also “all the harness, stock materials, tools, lumber, &c.,” belonging to said firm, and also all the notes, book accounts, and choses in action of whatsoever nature due to the said firm ; and on the very next day (2nd October, 1868) conveys to said Smith, “in consideration of two thousand dollars, to me paid by Frederick L. Smith,” the lots in question, with a full warranty of title.
• If these papers did not operate a dissolution of the partnership,, even if the lots ever were partnership property, and a final settlement of its affairs as between the copartners, it is very difficult to conceive what would produce such a result. After one of two copartners sells out his entire interest in the partnership, for a stated valuable consideration, the payment of which is acknowledged, to the other, who assumes payment of the debts of the firm, it is impossible to see what remains for settlement between them. And when, in addition to this, these transactions, thus evidenced by a formal deed and bill of sale, are allowed to stand unquestioned for a period of nearly twenty years, and no effort is made to question them until some four or five years after the death of the partner, who has thus bought and paid for the interest of his former copartner, and has devised the property conveyed to him to another, it seems to me that it is asking a great deal of a Court of Equity, at this late day, and more than any court should grant, to unravel these transactions, and permit the plain*546tiff to ignore and contradict his solemn deed of conveyance and formal warranty, and place him in the same, or rather in a better, condition than he was when he made such conveyance, and received valuable consideration therefor, upon the ground that the conveyance, which he is now seeking to get rid of, if not made with a. view to hinder and delay his individual creditors, whose claims are now probably barred by lapse of time, was confessedly made as a mere sham and pretence, and not intended to effect any change' whatever in “the use, occupation, enjoyment, and ownership” of the property conveyed.
This, as I have said, would be placing the plaintiff in a better position than he occupied before making the sham conveyance, which he is now seeking to avoid. For prior thereto, he was equally responsible with Smith for the debts of the firm ; but when Smith assumed payment thereof, and, as must be assumed, paid them, as it is admitted that the debts have all been settled, and there is no pretence that plaintiff ever paid any part thereof, plaintiff would now be relieved from that liability7, and yet restored to his interest in the property for which Smith had already paid him. The deeds show an acknowledgment of the payment of the consideration mentioned therein, and although this might be contradicted-by any competent evidence, yet there is not a particle of competent evidence to that effect, the testimony of plaintiff to this effect being clearly incompetent, and so ruled by the Circuit Judge, to which ruling there is no exception.
In view of what has been said, and in the face of the express terms of the deed, which are uncontradicted by any competent evidence, I do not see how the Circuit Judge could reach the conclusion, “that though there may have been a termination of_ the partnership as to future transactions by the deeds of the 1st and 2nd October, 1868, there has never been a final settlement between the partners of their interest in the partnership property.’’ But reaching that conclusion, he seems to hold, although the complaint is not framed with any such aspect, that the property conveyed by the deed of 2nd October, 1868, was impressed with some sort of trust, which, though not expressed, is still capable of proof, and he finds such proof in the testimony of the continued acknowledgment by Smith of plaintiff’s joint interest after the *547conveyance was made and up to the time of his death. But while there is abundant evidence of such acknowledgments, the only testimony that I am able to find indicating the trust (if any), is that proceeding from the plaintiff’s witness, Schley, which shows that if the property was held by Smith upon any trust, it was to protect it from the individual creditors of the plaintiff; and surely no Court of Equity would lend its aid in the enforcement of such a trust.
It seems to me, therefore, that in any view of the case, the judgment below should be reversed and the complaint dismissed.
Judgment affirmed.