Battle v. Street

| Tenn. | Dec 16, 1886

Lead Opinion

Burton, J.

Samuel M. Copeland in 1864 inherited from his "brother, James C. Copeland, an undivided one-sixth interest in the estate of the latter. The interest, as it subsequently turned out, was altogether realty, the personalty being fully consumed in the payment of debts, as well as a part of the lands. Before division among the heirs, and before the settlement of the estate, Samuel M. Copeland, by deed duly registered, and for the nominal consideration of $3,000, conveyed this interest to his son, John B. Copeland.

Oil the 5tli of January, 1869, Samuel M. Copeland died intestate, leaving a Avidow and twelve children, eight of whom were adults. On the same day of the hurial of Samuel Copeland, a family conference was held at the house of the intestate, the persons present being the adult heirs of the deceased, eight in number, the married daughters being represented by their husbands. At this meeting John B. Copeland stated that he held the interest of his father in his Uncle James Copeland’s estate, and that the agreement with his father Avas that he should give his notes to his father for $3,000, which were to be deposited with Richard Ransom, but that he was never to pay the notes and was to reconvey this interest to his father when it should be demanded. He said that he Avas willing to surrender this interest to the estate. O. W. Morton, a son-in-law, thereupon proposed that this interest should be sold to Green, Layne & Co., a firm of which he was a member, and that the fund should be invested in land and the title taken to Mr. Alexander, another son-in-law of the deceased, for the benefit of the widow and children of the intestate. He said he would “ consult” his partners that night and report the next morning. The family council being again assembled, he reported that his partners would not agree to give 'more than $2,000 for the interest; that the defendant, Street, one of his partners, said that the debts against the estate filed amounted to $7,000 or $8,000, and there was no money to pay them with, and that more land would have to be sold to pay these claims; and he, Morton, strongly urged that their offer should be accepted. This representation as to the condition of the estate of James Copeland undoubtedly had much effect in inducing an acceptance of this offer. John B. Copeland, the fraudulent vendee, however, objected to making a deed to Green, Layne & Co., and said that he would have nothing to do with the sale, as it would get him into a law-suit. His objections were, however, removed by the parties present all entering into bond to indemnify him against damage by reason of his conveyance, and he agreed, and did shortly thereafter, convey said interest by warranty deed to the defendants, Park Street, W. K. Green, Geo. Layne, and G. W. Morton, partners under the name of Green, Layne & Co. These defendants paid to him the sum of $2,000 in cash. This money, instead of • being invested as had been agreed upon, was deposited by John with his brother-in-law, Geo. W. Morton, the latter giving a receipt in which he agreed to deposit the fund in a Nashville bank, there to remain until the purchasers should be satisfied with the title.

No part of this fund has ever come to the hands of complainants. This record shows, however, that the defendant, Street, after this sale, became the administrator upon the estate of Samuel Copeland; and the estate proving insolvent, he, in 1874, shortly before the filing of this bill, filed liis original bill as administrator in the Chancery Court of "Williamson County against John Copeland, then a non-resident of the State, and Geo. W. Morton, a citizen of said county, charging that John Copeland was indebted to the estate of Samuel Copeland in the sum of $2,000, and that Geo. W. Morton had in his hands about that sum of money the property of John Copeland. Jurisdiction was acquired by attaching this fund in the hands of Morton and publication for Copeland. A decree was obtained against Copeland, not for the whole sum charged to be due as a debt, but for the sum shown to be necessary to pay balance due creditors of Samuel Copeland after exhaustion of assets in hands of his administrator, Street. This sum ordered to be paid over was about $1,200, and this was promptly paid over by Moi’ton, the depositary. The remainder of this fund — about $800 — still appears to be in the hands of Morton. Morton was originally a party defendant to this suit, but pending the litigation has died, and there has been no revivor against his representatives.

There is no proof whatever showing that this fund was kept by Morton as a member of the firm of Green, Layne & Co., or that they had anything whatever to do with the fund after it was paid over to John, or procured or induced its deposit with Morton, or, indeed, that they had any knowledge that it was in Morton’s hands until some time after the transaction.

The bill charges that this fund was retained by Green, Layne & Co., and seeks to charge them with this fund, as in their hands. The proof fails to make out any case upon this branch of the suit which would justify a decree against the partners of Geo. ~W. Morton upon account of his subsequent receipt of this fund from John Copeland. His act in this connection was his individual act. He did not pretend to receive it for the firm of Green, Layne & Co.; and the proof wholly failing to show that his partners received the fund from him, or adopted his receipt of the fund, they cannot be charged on account of his individual receipt of this money, even if his purpose was to hold it for the indemnity of his firm.

.The complainants are ten of the twelve children of Samuel Copeland. The defendants are Park Street, W. K. Green, Geo. Layne, and Geo. W. Morton, composing the firm of Green, Layne & Co., and purchasers of the interest of Samuel Copeland in the estate of James C. Copeland. Louisa, the wife of Geo. W. Morton, and John B. Copeland- are likewise made defendants. Park Street is sued individually as well as in his character as administrator of Samuel Copeland, the father of complainants.

The complainants charge that their father, a few months before his death, “ being much embarrassed with debts, and being anxious to secure to himself a small amount for his support and maintenance and that of his large family, entered into a fraudulent agreement with his son, the defendant, John JB. Copeland, whereby there was sought to be concealed from his creditors an undivided interest of one-sixth part in value in the estate of his deceased brother, James C. Copeland; that in the execution of this design he had conveyed, on the 7th October, 1867, by his deed of that date to his son, John B. Copeland, for the nominal consideration of $3,000 as expressed on the face of the deed, all his right, title, interest, and claim in and unto the estate of his brother, James C. Copeland.”

The bill then sets out in detail the facts concerning a family agreement, by which John Copeland was induced to sell and convey this interest to Green, Layne & Co., the bill distinctly stating that the proposition made to John Coiseland, and ultimately accepted by him, was that he, as “the holder of the legal title to said interest, should sell said claim for the benefit of the widow and children.” The bill then charges that the sale was made for $2,000, upon the representations of Moi’ton that the estate of James C. Copeland was much involved, and that there was no telling how it would turn out; that Morton knew that such was not the, case, and that in point of fact there was at that very time over $1,200 in the County Court due and payable on the share of Samuel Copeland in that estate, resulting from a sale of a portion of the lands for partition; that Morton knew that none of the persons interested knew anything of the true condition of the estate, and that he knew and intended that they should rely upon him, and that he made these fraudulent representations for the purpose of inducing a sale at • a low price; that the defendant, Park Street, was fully aware of the condition of the estate of James Copeland, and that while the widow was the nominal administrator, yet that he (Street) was the real administrator. The hill further charges that Park Street was the administrator of Samuel Copeland, but does not state whether he had qua!-, ified before the purchase of said interest, though the clear inference from the bill is that he was administrator at that time, for it specifically charges “that Park Street, administrator, etc., was particeps eriminis in this fraud, and reaped, and is still reaping, the benefit thereof,” and “that he should, as administrator, be charged with the full value of said interest, as assets in his hands for the payment of debts.” This interest is stated to be of the value of over $4,000, and that the indebtedness of the estate was comparatively trivial. Green, Layne & Co. are charged with full knowledge of the fraudulent character of the conveyance from Samuel to John Copeland. The estate of Samuel Copeland is charged to be insolvent, and that the administrator had been repeatedly urged to sue for and recover this interest for the benefit of the estate, but had refused to do so, until a few days before he had filed the bill against John Copeland and Geo. Morton, heretofore mentioned in this opinion. They say • that if the- administrator had filed a proper bill to recover the whole of said interest, “that the estate of Samuel Copeland, so far from being insolvent, will be found solvent, with a surplus for the heirs at law.”

In this last statement is manifestly found the object and purpose of this bill. “The surplus for the heirs at law” is the inducement to file this bill. Hpon the facts herein stated, the bill prays relief as follows: “That the sale of the interest of Samuel M. Copeland, deceased, in the estate of James C. Copeland, above spoken of, may be declared null and void, as made by John Copeland, who had no power or authority to make such sale.” “Or if mistaken in this, that the same may be set aside for fraud, as against the rights of creditors, and particularly the minor heirs of said Samuel M. Copeland, and the daughters not sui juris.” “That the defendants, Green, Layne & Co., be decreed' to pay over into the hands of the Clerk and Master, for the use of the creditors of Samuel Copeland’s estate and his heirs the amount in full and interest thereon received by them on account of said pretended sale.”

The bill is filed by complainants in behalf of themselves and any of the “ creditors of the estate of Samuel Copeland, who may seek to become parties to this suit, and contributing their share of the costs and expenses thereof.”

A demurrer was filed to the bill, which was sustained by the Chancellor. Upon appeal to this Court the demurrer was overruled and the cause remanded for further proceedings. It is now most-strenuously insisted by counsel that the effect of overruling this demurrer is equivalent to .an adjudication of the several questions of law arising upon the facts stated in the bill, and particularly is it insisted that the fraudulent character of the conveyance by Samuel Copeland to his son John Copeland, and the subsequent fraudulent sale of this interest for the benefit of the widow and children, a sale in manifest furtherance of the original fraudulent design of the intestate, will not estop complainants from maintaining this bill, this consequence flowing from the action of this Court in overruling the demurrer interposed by defendants. But it is to be particularly noticed that the decree overruling the demurrer assigns no ground for the action of the Court, and simply adjudicates that the demurrer is overruled and remands the cause for further proceedings. No opinion was filed by the Court from which we can determine the precise ground upon which the Court thought the demurrer bad. In this state of the case it is well settled by the later decisions of this Court, that such a decree, overruling in general terms a demurrer, adjudicates nothing but that there is sufficient equity upon the face' of the bill to require an answer. Rodgers v. Dibrell, 6 Lea, 69; Kirkpatrick v. Utley, 14 Lea, 97.

In so far as these cases differ from the earlier cases of McNairy v. Mayor of Nashville, 2 Bax., 251, and Jamison v. McCoy, 5 Heis., 108, they necessarily modify the earlier opinions.

Manifestly, there is more than one phase of this hill which, if borne out by the proof, would probably entitle complainants to some relief. To illustrate: The bill makes a case of an insolvent estate; that the administrator is himself holding a large and valuable interest, acquired with knowledge that it had been fraudulently conveyed by his intestate, and that the administrator fails and refuses to bring suit to recover same. Now, the bill being filed upon this special state of facts, and for the benefit of creditors, it might in this aspect of the case be very well entertained.

The proof does not sustain the allegations which might justify the maintenance of this bill as a bill for the benefit of the creditors of an insolvent estate.

The defendant, Street, did not qualify as administrator of the estate of Samuel Copeland for several weeks after he had made the purchase of the interest of his intestate in the estate of James Copeland. Before a final decree was pronounced in this cause, the administrator’s bill filed against John Copeland and Morton had resulted in the administrator’s obtaining funds enough to pay all the creditors of the estate of Samuel Copeland in full, so that there are now no creditors to complain or be benefited by this bill.

Ill this view of the ease, we reach the question as to whether this bill can be sustained by the heirs and distributees of the fraudulent vendor to recover the property so conveyed by him. If this interest was still in John B. Copeland, and this bill filed against him to set aside the conveyance from the ancestor of complainants upon the ground that it was, as expressly charged in the bill, for the purpose of hindering and delaying his creditors, it could not, for most obvious reasons, be entertained. The conveyance would be valid as between the fraudulent grantor and his grantee, and equally binding .upon his heirs and representatives. Before the act of 1852, carried into the Code at § 3241, such a deed could not be impeached by the administrator of the fraudulent intestate under any circumstances. That act only permits recovery of property so conveyed in case of insolvency, and then solely for the benefit of the creditors. By this act the administrator is made the representative of the creditors of the estate to the extent that he may bring a bill in equity for their benefit to set aside a fraudulent conveyance to the prejudice of creditors. This Court has said that “in bringing such suit he is not acting in the proper capacity of representative of the estate, but rather in tlie new and different capacity of the representative of the creditors.” Baxter v. McKay, 4 Sneed, 288.

A creditor, either with or without a judgment, may likewise file such a bill, for the conveyance is of course fraudulent and void as to him. Spencer v. Armstrong, 12 Heis., 707; Armstrong v. Croft, 3 Lea, 191.

But is the status of these complainants in anywise changed by the facts concerning the sale of this interest to the defendants, Green, Layne & Co.? If the facts concerning the purpose of this sale be regarded as substantially stated by the hill of complainants, then we have a case where the fraudulent vendee is persuaded or induced to sell and convey the property so held by him “for the benefit of the widow and children” of the fraudulent vendor. The original purpose of the testator, as stated by complainants themselves in their bill, in making this conveyance, was “to secure to himself a small amount for his support and maintenance and that of his large family.” Now it is so obvious that it needs no argument to sustain the proposition that this sale to Green, Layne & Co. was in direct furtherance of this original fraudulent scheme. It is not the case of a fraudulent vendee renouncing to those rightfully entitled all interest acquired by the fraudulent scheme. The case of Sharp v. Caldwell, 7 Hum., 415, is strongly urged upon us by the very able and zealous solicitors for . these complainants. The facts in that case were materially different from the facts of this. In that case the Court say concerning the notes taken by Rivers, the fraudulent vendee, for the goods fraudulently conveyed to him:

“ Tliat if Rivers had claimed these notes, for which the goods were sold, as being his property, and had insisted on his right to the proceeds by virtue of the pretended sale of the goods to him, the administrator of "Whitney (the fraudulent vendor) would have been repelled from a Court of Chancery had he come hy his bill to set aside that sale as fraudulent and to obtain these effects as assets of the estate of Whitney. But the facts do not present that case. After the death of Whitney, Rivers set up no claim to these notes. He said the sale was a sham, and that the notes belonged to Whitney’s estate, and he delivered them up to be applied in payment of Whitney’s debts.”

The surrender of the notes to those rightfully entitled, and for the payment of the creditors, against whom only was the pretended sale void, marks the distinction between that case and this. It is true that the proof shows in this case that at the family conference the vendee confessed that the sale- to himself was a sham, and expressed his willingness to surrender the interest thus acquired to the estate. If he had done this, and put the property back in the heirs of the vendor, where it would have been subject to the claims of creditors, this case would fall within the principle of the case relied upon. But this he did not do. Hpon the contrary, the hill states that, under the suggestion of Morton, it was agreed that a sale of this interest should _ be made “for the benefit of the widow and children;” and the proof shows that a pax’t of the scheme agx’eed upon was that the fund arisiixg from this transaction, together with about $5,000 belonging to the intestate, and improperly in the hands of his widow, should, instead of being turned over to the administrator, be invested in a tract of land, and the title taken to W. H. Alexander, one of the sons-in-law of the intestate. The proof further establishes that John Copeland positively refused to make the desired deed to Green, Layne & Co., or to have anything to do with the sale, upon the ground that it would involve him in lawsuits. This objection was only yielded upon these very complainants executing to him a bond to indemnify him against the consequences of his further participation iix this most iniquitous and fraudulent scheme. The solemn pledge which each one of these complainants then and there entered into never to divulge the proceedings of that family council only demonstrates that they themselves well realized that their arrangement was oxxly in fux’theraxice of the original fraud of their ancestor. What rights these complainants have ixx this property they must either acquire through their ancestor, the fraudulent vendor of this property, or through the scheme by which this property was sold to Green, Layne & Co. for the benefit of themselves and the widow of the grantor.

It is plain that as heirs and distxdbutees of the fraudulent vendor they cannot impeach his deed, and it is equally as plaixi that the scheme ixx the furtherance of the original fraud of their ancestor has conferred upon them no new rights. Originally complainants were only effected as heirs and privies in estate with the fraud of their father, hut by this latter arrangement they became active participants and promoters of the fraud. The interest they have acquired' through this sale and agreement with their brother, John Copeland, having originated in a gross and palpable fraud, must repel them from a court of equity. This Court will never lend its aid to enforce, or protect, or rescind, in behalf of the participants, claims or rights so originating.

In the case of Taylor v. Harwell, 5 Hum., 331, this Court declined to intervene and protect the property of a legatee whose testator’s title had been acquired through fraud, even against persons who, by reason of the discharge of their debtor in bankruptcy, and by the fact that their executions were functus officio, were in no condition to attack the conveyance.

In the case of Searcy v. Carter, 4 Sneed, 271, the facts were that Searcy, by a deed fraudulent in law, conveyed certain slaves to one Bracken, and Bracken afterward, by will, gave the same slaves to Searcy for life, with remainder to the children of Searcy. Searcy, in defiance of the remainder interest of his children, sold the same slaves absolutely to one Carter. The remainder-men thereupon filed their bill against the purchaser, to have their rights declared and their interests protected. It being made to appear that the original sale by Searcy to Bracken, the testator, was fraudulent, and that Bracken participated therein, and that his will reconveying to Searcy and his children the same slaves, was in furtherance of the original fraudulent purpose, and that the purchaser had given a fair consideration and held for many years adversely to the rights of the remaindermen, and dismissed the bill.

The Court, in answer to the argument that, however fraudulent the purpose of Searcy in conveying the slaves’ to the testator, yet the title of the testator had been' cured by adverse possession before execution of his will, and that the title thus perfected he could convey by will to the complainants, said that even if the statute of limitations had been applicable “we would hold that neither a fraudulent vendee nor volunteers under him can demand the active interposition of a court of equity for the declaration or protection of such a title. Whatever the effect might be at law under the all-curative powers of the statute, a court of equity will withhold its hands on account of the original fraud in the transaction. Whatever stain was upon the hands of the testator is communicated with the gift to those of his legatees. They cannot, then, be heard to claim the benefit of the statute, or any other right springing out of such corrupt transactions as complainants, in a court of chancery.” Whatever right complainants acquired to a participation with John Copeland in the fruits of tlie transaction between himself and his father, they ' acquired from and through the voluntary agreement of John Copeland to share the proceeds of sale with them.

“ The destructive effect of fraud upon any contract, conveyance, 01* other transaction, is so essential and far-reaching that no person, however free from any participation in the fraud, can avail himself of what has been obtained by the fraud of another, unless he is not only innocent but has given some valuable consideration.” 2 Pom. Eq. Juris., Sec. 899.

This doctrine, even if complainants were not active participants with John Copeland, would prevent a court of equity from actively aiding them to obtain a rescission of the sale to Green, Layne & Co. But it is unnecessary to place this case upon other ground than is taken in the foregoing part of this opinion — “that he who comes into equity must come with clean hands.” The doctrine of this case applies as fully to the complainants who were not sui juris at time of salé to Green, Layne &« Co., and to such of the complainants as did not personally participate, if there be any such, in the sale as to the adults, and for the obvious reason that if they repudiate the conveyance by John Copeland to Green, Layne & Co., or are not affected by the fraudulent agreement to invest the fund in a manner whereby creditors were to be defeated, they would, treating the sale by John Copeland as not complicating their rights, be still affected by the fraud of their ancestor. They could neither recover the property from John Copeland or his vendees, the defendants in this case. The stain upon the hands of their ancestor, under whom they would have to claim, would equally affect them, and repel* them as effectually as he would have been had he attempted a recovery or rescission of his fraudulent deed. The Chancellor dismissed the bill of complainants, and we affirm his decree. The Beferees, in recommending a decree in behalf of complainants, have erred, and their report will be set aside.

Complainants will pay all the costs of the cause.

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Dissenting Opinion

Turney, C. J.,

dissents from the conclusion reached, except as to the .$2,000 paid over to John Copeland, for the reason that he is of opinion that when John Copeland expressed his willingness to surrender the property conveyed to him by his father in fraud of his creditors, that this was such a renunciation of the fraudulent deed as if carried into effect, would have restored the property to the heirs at law, subject only to the claims of creditors. That his failure to do what he proposed to do was wholly brought about by the suggestions of Morton that it should be sold to his finn and the fund invested for the benefit of the widow and children. That this conduct of Morton was to secure the interest for his firm, and was part of a fraudulent scheme to secure the property at a low price, and that his partners are chargeable with the fraud of Morton, and ought .not to be allowed to set up the conveyance to them as iu furtherance of the original fraudulent purpose of the intestate of complainants, because the sale to them, and agreement to invest the fund for the benefit of complainants, was superinduced by the suggestion and fraudulent representation of Morton, all of which were made for the very purpose of procuring the property for them at a low price.