Lee v. Hunter

1 Paige Ch. 519, 1829 N.Y. LEXIS 395, 1829 N.Y. Misc. LEXIS 29

Opinion

The Chancellor:—The first question presented in this case is whether the conveyance from Smith and wife to the appellant, in January, 1818, was a fair and bona fide conveyance, or was intended to defraud creditors, or hinder or delay the collection of their debts.

The suit of Oonine was then pending, but could not be tried so as to have a judgment rendered therein previous to the May term. But the suit in behalf of the state, on the loan office bond, was in a situation that a judgment might be entered therein in a few days. Smith was also indebted to Losee and others. Under such circumstances he made a conveyance of all his property, both real and personal, to his father in law. And what did he get in exchange to pay his creditors, who were about to obtain judgments against him? He got $4,000 in Virginia lands, which had been conveyed to Lee, twenty years before, but which he had never seen. It is true a regular paper title to this land is produced, under a location made in 1786. But every person at all acquainted with the location of Virginia and Kentucky land warrants is aware that it frequently happened that several holders of these warrants, located upon and obtained patents for the same tract, without knowing it had before been granted to others. A patent, under such circumstances, is scarcely prima facie evidence of title. And when we take into consideration the fact that no attempt has been made to take possession of the land under this title for more than forty years, it is hardly credible that the appellant still believes it to be a valid and ^subsisting title, and that the lands are worth the price mentioned in the deed. But if the title had been known to the parties to be good, it is that kind of property which would be the least likely to enable a debtor in failing circumstances to raise money to pay his honest creditors. The Acorn note, for about $600, which also formed a part of the alleged consideration of the deed, was afterwards collected by Lee; and the bond, which is said to have been given for the balance, is not recollected by the subscribing witness to the deed, and no body has ever seen it. "In addition to this, the possession of the property was not actually changed, although it might have been nominally. On the whole I am perfectly satisfied, from the evidence, that the conveyance was fraudulent; and was intended not only to defeat the recovery of Conine’s debt, but also to protect the property of Smith from the operation of the judgment which was then about to be obtained on the loan office bond. Although the state could not probably be defrauded, as Hallenbeck and the surety had sufficient property to pay the debt, yet as they both stood in the relation of sureties to Smith, in respect to that debt, the effect of the conveyance was to defraud them, by removing the property of the real debtor beyond the reach of the execution, and leaving it to be satisfied out of the property of his sureties.

That a fraudulent use was made of this conveyance as regards Hallenbeck, is also evident from the pleadings and proofs in this case. The whole amount due to this state was received and misapplied by Smith; and Hallenbeck and his surety were entitled to full indemnity from him. In the appellant’s bill in this cause, he says that he agreed with Smith, as a part of the consideration of the conveyance of the farm, to pay and discharge the- amount due to the state for which the suit was brought on the bond. H such an. agreement was made, it was carefully concealed from the knowledge of Hallenbeck; and it appears from the testimony that Lee absolutely refused to become personally responsible therefor, and Hallenbeck was compelled to assume the payment of the whole amount himself, in order to obtain a mortgage upon a very small part of the farm for his indemnity. Even *that was no valid security, as the written defeasance was not acknowledged or recorded, and was left in the hands of Smith or Lee, so that Hallenbeck had no protection whatever against subsequent purchasers or incumbrancers.

Although the finding of the jury upon the sheriff’s inquest in August, 1818, as to the personal property which was conveyed simultaneously with the deed, and the more formal trial and verdict, which was given at the circuit in December, 1819, in the replevin suit for the same property, are not conclusive evidence of the fraudulent nature of this transaction; yet they are calculated to give me additional confidence as to the correctness of the conclusion at which I have arrived on this question from the pleadings and proofs before me in this cause. But the result of the replevin suit has an important bearing upon another point-in this case.

It is insisted on the part of the appellant that as Hallenbeck took a deed from him for the thirty-two acres, he is estopped from setting up the fraud in the original conveyance. On the part of the defendants it is alleged that by the finding of the jury in the replevin suit, all parties became satisfied the conveyance of the first of January, 1818, could not be sustained; and that the legal title to the whole farm was vested in Conine, under the sale upon his execution ; that in consequence thereof, the mortgage to Hallenbeck, and the agreement therein contained on his part, which had been made before the fraudulent nature of the original deed to Lee was known to him, were abandoned; and a new agreement was made for his indemnity. I think this allegation in the answer is abundantly established by the evidence in the case. There was no formal surrender of the deed and defeasance, but the recitals and stipulations contained in the written agreement made between Lee and Conine, in December, 1819, are wholly inconsistent with the idea that the agreement between Lee and Hallenbeck, in May, 1818, was to remain in force. Lee treated with Conine upon the basis of the.verdict which had been rendered two or three days before that time, by which the transactions of the first of January, 1818, were found to be fraudulent and void. He agreed *to become responsible to Conine for the whole amount of his debt and expenses, and to the attorneys for their costs and counsel fees. Conine on his part agreed that if the notes which were then given should be paid by Smith and Lee when the same fell due, and they should also secure Hallenbeck against the demand in favor of the state, he would convey the farm to Lee. This condition has never been complied with; and if the legal title to the farm is not in Hunter, under the sale upon the loan office execution, it is still in Conine. The release of all personal liability against Lee on the notes is not sufficient to authorize him to claim a conveyance under the agreement of December, 1819. That conveyance did not depend upon the personal responsibility of Lee. It was only to be made upon the payment of the whole amount of the notes by Smith and Lee. The principal part of these notes is still due from Smith, and Lee has no equitable claim to the land until the whole amount is paid. Conine is not a party to the suit, and no decree can be made affecting his rights. Hunter is not estopped from setting up an outstanding title in Conine. He did not go into possession under title derived from Lee, but in hostility to his claim. If he was in under the mortgage to Hallenbeck, it could not affect his right to set up an outstanding title in the residue of the farm beyond the thirty-two acres. And even if he was in possession of the thirty-two acres under the mortgage, the only right of Lee would be to redeem that part of the farm on payment of the amount secured by that mortgage and interest. But I have already showed that the mortgage security was considered as abandoned from the time of the compromise with Conine, and no person was ever in possession under the mortgage. The agreement of Conine recites that Smith was then residing on the farm.

If the original deed to Lee was fraudulent, and the mortgage security to Hallenbeck was abandoned by the agreement of December, 1819, the appellant has no right to complain of the proceedings under the act for the relief of Hallenbeck, passed in April, 1819, unless he thinks proper to comply with the conditions of the contract with Conine, and to make his claim under the equity of that agreement. But *if he had all the proper parties before the court, and was willing to comply with those conditions, his right to the farm in the hands of Hunter would be extremely doubtful, especially after such a lapse of time.

At the time of the compromise, in December, 1819, the people had a judgment which was a lien on the farm, and was prior in point of time to that under which Conine had purchased. The only question which can possibly arise in this case, is whether Hallenbeck was so far bound by that agreement as to preclude him from taking advantage of the law which had been passed for his relief. Although a condition was inserted in that agreement for the benefit of Hallenbeck, he was not technically a party thereto, and had no personal claim against any one except Smith, who was insolvent, for the payment of the debt for which he was responsible. He had an equitable claim to have the judgment of the state satisfied out of the property of Smith, on which it was a prior lien, instead of its being satisfied out of his own property. The legislature, in passing the act, divested no legal or equitable rights, and did nothing more than a court of equity might have done under like circumstances. At the time Hallenbeck took the assignment un ■ der that act, Lee had left the state, and probably without ever intending to comply with the conditions of the contract with Conine. It therefore became a struggle between two bona fide creditors of Smith for a preference against the estate which had been fraudulently conveyed to Lee. In this contest Smith took the side against Conine, and gave his assent to the issuing the execution, and released his claim to the surplus. At the sale under that execution the property was sold for much less than its real value; and Conine, in whom the legal title was then vested, had a right to redeem the property from this sale during the period of twelve months, and was also entitled to the surplus moneys which Smith released. Lee, who had contracted with Conine for the purchase of his right, might also, under the equity of the statute, have redeemed it from that sale. The property was in this situation when the proceedings were instituted against Lee as an absconding debtor. He had at that time an equitable interest *in the farm, subject to the payment of the notes to Conine and his attorneys, and the amount due on the bid. This right was attached by the sheriff, and passed to assignees, who were appointed in July, 1821. But as neither Conine or the trustees redeemed the premises from the sale, the whole title passed to Hallenbeck by the assignment of Brigham’s bid, and the sheriff’s deed in -January, 1822. If this was a valid sale as against Conine and Lee, which I am inclined to think it was, the whole legal and equitable title to the farm is in Hunter, under this deed from Hallenbeck. If this sale should be set aside as inequitable, then the legal title is in Conine; and the trustees of Lee, if they have any right to the property, can only avail themselves of it by paying the full amount of the notes to Conine and his attorneys, together with the amount which Hallenbeck has been obliged to pay on account of Smith. But those claims against the property, if any such exist, cannot be settled in this suit, as neither the trustees or Conine are parties. By the 10th section of the act, (1 Rev. Laws, 159,) the trustees from the time of their appointment, became vested with all the estate of the absent debtor; and by the 26th section (1 Rev. Laws, 163) the appointment is made conclusive proof in all courts that the debtor therein named was at the time absent, absconding or concealed, within the meaning of the act; and that the appointment and proceedings previous " thereto were regular. The surplus of the debtor’s property, after payment of all his just debts, is to be refunded to him. The statute has prescribed the mode of notifying the creditors to exhibit their claims; and the debtor is not entitled to a restoration of the surplus of his estate until those directions have been complied with, or the creditors have had a chance to be heard by their trustees, and by a public notice under a decree of this court. A decree that the defendants in this cause account to Lee, would not protect them from similar proceedings at the suit of the trustees. He alleges in his bill that there are no other creditors ; but the trustees have taken no steps to ascertain that fact, and it is impossible for the defendants to know whether that allegation is true or not. The proper course for the debtor to obtain a surplus *to which he might be entitled in such a case, would be to make the trustees parties; and if they had not already given the requisite notices to the creditors to exhibit their claims, notice might be given, under the decree of the court, in the usual manner of calling in creditors under a decree.

I am perfectly satisfied that this suit was improperly brought by the appellant; that no decree could be made in his favor against the defendants, and that the conveyance of the 1st of January, 1818, was fraudulent and void, not only as against Conine, but as against Hallenbeck, and the same ought to be set aside. The decree of the equity court is therefore affirmed, with costs; and the further proceedings to carry the same into effect may be had in this court.