69 Md. 592 | Md. | 1889
Lead Opinion
delivered the opinion of the Court.
On the twenty-seventh of September, eighteen hundred and eighty, John G-. McCullough and wife executed a deed, conveying'to Charles H. Slicer a farm lying in Baltimore County. The consideration set forth in the deed was “the sum of ten thousand dollars lawful money.” On the fourth of June, eighteen hundred and eighty-oue, Slicer conveyed to Mrs. Annie E. McCullough the same property for a consideration stated in the deed to be “ three hundred dollars lawful money, and for other valuable considerations.” In the spring of eighteen hundred and eighty-six, McCullough being insolvent made an assignment, for the benefit of his creditors, to his son George S. McCullough and Wilson Townsend. Proceedings in insolvency were thereafter instituted against him and he was adjudged an insolvent. Charles H. Diggs was appointed his
The two questions presented by the record are, whether these deeds are fraudulent, and whether the appellants are entitled to assail them. These questions, though somewhat interwoven with each other, will ho considered separately.
Mr. and Mrs. McCullough were married on the twenty-fourth of February, eighteen hundred and fifty-six. She was then, and for nearly two years previously had been, engaged in the dress-making business. She continued it until eighteen hundred and sixty-five or six. According to her testimony she realized large profits which, after deducting her household and her business expenses, she placed in the hands of her husband to he invested by him for her. Mr. McCullough put this money, as he received it, along with his own to his credit in bank; checked upon it in the course of his business as a wood and coal dealer and used it precisely as he did that which he earned himself. There was no promise or agreement made by the husband to repay to the wife the money so given by her to
Closely following the Conveyance of the farm by Slicer to Mrs. McCullough, and almost concurrently with it, property on the North-west corner of Park and Fayette streets in Baltimore, standing in McCullough’s name, was conveyed by McCullough and wife to the same Charles H. Slicer, for a consideration of six thousand dollars in bonds—being part of the very same ten thousand dollars of bonds which had been availed of to-effect a transfer of the title to the farm. About two-years afterwards McCullough bought this same city property hack for his toife from Slicer—the consideration being six thousand four hundred dollars—four hundred dollars in cash, and Mrs. McCullough’s two promissory notes for three thousand dollars each, signed by herself and her husband, hearing five per cent, interest, and both being payable several years after their date. Before the conveyance of this piece of property to Slicer, McCullough had his coal office on the premises- and he has continued it there ever since. He.collected the rents from the dwelling after the deed was made to-Slicer, and he paid the taxes. Whilst the title stood in Slicer’s name, McCullough paid to the Gay street Savings-Bank the interest on a mortgage held by the-Bank on this identical property. This was, to say the least, very singular conduct, if Slicer in fact and in good faith owned the property.
Early in 1882, McCullough sold to his sister a house situated on McCulloh street, in Baltimore, hut conveyed it to her husband John H. Meyers. McCullough alleges that in 1812 he received from his deceased brother’s estate two thousand five hundred dollars in bonds which belonged to his sister Mrs. Meyers ; that.
In 1883 he sold for eight hundred dollars his McHenry street property, which he valued in his statement of assets at one thousand dollars. In 1884 he sold to the same John H. Meyers (his brother-in-law) a wharf property for ten thousand dollars, and received payment in four notes of Meyers, unsecured in any way, each for twenty-five hundred dollars, and all of them running some years. Meyers did not take possession of this projjerty, but McCullough remained in its occupancy until February or March, 1886, under a rent, he says, of twenty-five hundred dollars a year, which included the annual interest on a seventeen thousand dollar mortgage. The last payment of rent was made by a transfer to Meyers of McCullough’s horses and carts,
In 1884 a property on the South-west corner of Pratt and Fremont streets, Baltimore, was conveyed by McCullough to the same John H. Meyers, in consideration of twenty-five hundred dollars. Fifteen hundred dollars of this, McCullough says he owed his sister from the estate of George S. McCullough, deceased; and for the difference Meyers gave his notes which have since been paid. The evidence given by McCullough renders it exceedingly improbable that his statement with regard to this transaction is correct. Property at the North-west corner of Pratt and Fremont .streets, was sold by McCullough in 1886 to his son for two hundred dollars. In 1884 a mortgage for six hundred dollars on Pratt street property was exchanged for property in Anne Arundel County, the deed for which was made to McCullough’s son. Some land
Having thus stripped himself of all his visible property, and having caused the titles thereto to be made to his wife, his son and his sister’s husband, he resorted,, when examined as a witness, to the most extraordinary statements to account for the disappearance of the bonds and other assets which he claimed that he owned on May 1st; 1881. He says that by August, 1884, he had lost thirty thousand dollars in stock speculations, and by the last of December, of the same year, over one hundred thousand dollai-s. The six thousand dollars in bonds which he says he received from Slicer for the Eayette street property, some of the Meyers’ notes, the bonds belonging to his brother’s estate, together with all the money which he could borrow, were swept away. All this large sum of money he says passed through the-hands of a man named Sutton, now deceased, 'who had a desk in McCullough’s office. Sutton sold the bonds and procured the notes to be discounted, but never gave McCullough a check for the proceeds ; and McCullough,, when furnishing Sutton with money to put up in margins, never drew a check therefor. Currency was used in all of these transactions, and there is not an entry on McCullough’s books with respect to a single one of' them. lie admits that a large proportion of these heavy losses was made up of borrowed money, but when repeatedly pressed to give the name of but one person from whom he procured money for the purpose of thus speculating, he is compelled to confess his utter inability to do so. This is simply incredible. If he borrowed from any body for this purpose, it was-impossible for him to fail to remember the name of at least one such person. But he does furnish the name of a person whose notes he had had discounted through Sutton. That person was Samuel J. Smith. McCul
It is important at this point to notice briefly the character of McCullough’s indebtedness to Diggs. At the time the deed for the farm was made to Slicer, McCullough owed Diggs a considerable amount. This indebtedness was due for coal purchased from Diggs. Their mode of dealing was as follows: at the end of each month McCullough would give .his promissory notes to Diggs at four months for the purchases of the preceding month. This course was kept up without interruption until McCullough made an assignment, at which time he owed Diggs twenty-eight thousand three hundred and twelve dollars, and thirty-four cents. Whilst he was steadily and uninterruptedly stripping himself of his visible property, he continued to incur debts to Diggs and others, knowing perfectly well that when the end would he reached—when he had parted with all his property-—these creditors would he hindered and delayed, if not entirely thwarted, by these conveyances, in securing payment of their claims. The
These successive conveyances and pretended sales to which we have alluded, were but devices resorted to by McCullough to place his property beyond the reach of his creditors, subsisting and subsequent, whilst he continued in the full use and enjoyment of it himself. This is the direct result of his conduct and, of course, must have been so intended by him. The very methods to which he resorted, and the agencies which he employed, proclaim his fraudulent purpose. The appearance of Slicer in three of these transactions; the use of the very same bonds in two of them; the failure to produce Slicer as a witness, and to prove by him the reasons which induced him to become the purchaser of the farm and the Fayette street property, whereby he lost the interest on his bonds, whilst McCullough held them, and received no income from the property; and his acceptance of the joint unsecured notes of McCullough and wife, bearing five per cent, interest in payment for the city property, which he is said to have purchased with valuable bonds, yielding perhaps not less than six per cent, interest, are circumstances not reconcilable -with good faith. The failure of McCullough to include these two notes to Slicer in his list of debts in the insolvent case carries with it the conviction that the notes never existed, because it is not pretended that they have been paid. His tangible property was transferred to his immediate family, but still remained in his possession and occupancy; his intangible assets were squandered, as he alleges, in stock speculations carried on for him by a person now
Whilst there is no one specific test by which the existence of a fraudulent intent can, in every instance, be detected; there are certain well recognized badges or indicia (concisely stated in Alex. Br. Statutes, 383), that lead, with moral certainty, to its discovery, in spite of cunning and adroit devices to conceal it. We have given an outline of the indicia furnished by the evidence in this case; and we are constrained to say that it has rarely been our duty to pass upon a case involving such rank fraud—a plan so deliberately formed to cheat, defraud and baffle creditors, and so minutely carried into execution. These conveyances and pretended sales, and this secreting of assets, cannot be explained upon any other hypothesis than this. It is impossible, therefore, to escape the conclusion that from the very beginning McCullough entered upon a scheme to delay, hinder and defraud his subsisting creditors, as well as persons to whom he might thereafter become indebted; and that the deeds in- question were executed in furtherance of that scheme.
An effort has been made to support this deed as a voluntary gift; but that cannot prevail. The .deed purports to convey the farm in consideration of “three hundred dollars current money and other valuable considerations.” It must stand, if it stands at all, upon
Besides this, if the deed was a voluntary one the defences taken by the parties to it in their answers are utterly untrue in fact. If it is a voluntary deed from the husband to the wife, it is clear she was not a purchaser of the farm from Slicer; and it is equally clear that, in the first instance, her money was not invested in it. But the deeds are fraudulent in fact, and therefore cannot be upheld on any ground. If it be conceded that this was a voluntary gift by the husband to the wife, being fraudulent in fact, it could not be permitted to stand.
We are now brought to the question whether the plaintiffs have a standing in Court to assail these deeds. The trustee in insolvency represents all the creditors, and may undoubtedly sustain any proceeding which the creditors might prosecute to vacate fraudulent conveyances made by the insolvent. If the creditors thus represented by the trustee became such after the execution and recording of the impeached conveyance, and if the conveyance -was made with a view and with the intent to defraud those who should thereafter become creditors, there is no reason for holding that conveyances so made cannot be successfully attacked by the trustee. A subsequent creditor could maintain a proceeding of that kind, and there is no rule
Our examination of the record before us has brought us to the conclusion tha-t the deeds assailed in this case were executed with the intent to hinder and delay creditors, and to defraud persons who might become creditors thereafter; and that, in consequence, they are void and must be set aside. The decree appealed from will accordingly be reversed, and the cause will be remanded, that a decree may be passed in conformity with this opinion. ■
Decree reversed, and cause remanded.
Dissenting Opinion
delivered the following dissenting opinion:
If the complainant can successfully assail the deed, which is the ground of this suit, he must do so for the reason that it was made with the intent to defraud subsequent creditors.
The deed was executed and recorded some years before the debt of the complaining creditor arose, and he
Some contention has been made in the argument that the complainant should be treated as. an existing •creditor, because he continued to deal with the grantor, McCullough, after the debt which was due him at the time of the execution of the deed, was fully paid.
But I can see no distinction between the case of a creditor whose debt has been paid, and who afterwards again deals with the debtor, and any other creditor.' In attacking deeds for fraud I think our decisions have always maintained a clear distinction between existing and subsequent creditors. As the claim of Diggs, the complaining creditor, which was in existence at the date of the deed, has long since been fully paid and satisfied, if he has any claim to relief it must be as a subsequent creditor only.
It is well settled in this State that a voluntary conveyance may be set aside by a subsequent creditor, provided it was executed with the design and intention of defrauding those who should thereafter become his creditors. Matthai, Ingram & Co. vs. Heather, 57 Md., 484. But while the law is so stated very distinctly and emphatically, yet 1 find no case in this State where such a deed has been declared void against subsequent creditors, and very little authority defining the general principles that should guide' us in endeavoring to search out such frauds. There have been, however, some decisions which I think worthy of special notice.
The case of Williams vs. Banks, 11 Md., 250, was the case of an attempt to se't aside a voluntary conveyance, and a majority of the Court in that case use very strong-language in reference to the effect of our registry laws upon deeds of that character, and go so far as to say, “we cannot comprehend how a person who, at the time of becoming a creditor, is aware of the existence of a
' Standing alone these expressions certainly seem to imply, that as a subsequent creditor 'has notice, by its registration, -of the existence of a deed he could not-be defrauded by it. But in another part of the same-opinion the same Judges say that they do not wish to he understood, “as denying the right of subsequent creditors to invalidate a fraudulent deed when made with the intention and design to defraud those-who should thereafter become creditors.”
In Kane vs. Roberts, et al., 40 Md., 590, an attempt-was made by a subsequent creditor to upset a deed as-fraudulent and void against him. It was conclusively proved by the grantor himself that the deed was made for the purpose of defrauding certain existing creditors, and the subsequent creditor insisted that a deed that was 'fraudulent in fact was void against subsequent as well as existing crediors. In answer to this contention the Court said:
“While some of the authorities referred to sustain this proposition, we cannot hold them to be the law in this State in view of the decisions of this Court in the cases of Williams vs. Banks, 11 Md., 250; Cooke vs. Kell, 13 Md., 469; Moore, et al. vs. Blondheim, et al., 19 Md., 175. These cases hold that a voluntary deed, which is fraudulent in law, is void as against preexisting creditors, and also that a voluntary deed, which is made with the design to defraud subsequent, creditors, may be impeached by those so defrauded. But they also hold that, where a voluntary deed is-
It seems to me that this is a succinct statement of the law on that subject as it exists in this State today. A deed may be fraudulent in fact, that is to say, made with the design to hinder, delay and defraud existing creditors, yet unless it was made with the intention and design to defraud subsequent creditors,, these latter have no right to impeach it. They deal with the party with knowledge, either actual or constructive, of the existence of the deed.
It is very apparent from these cases, that in order to entitle a subsequent creditor to relief against a duly recorded deed, he must show something more than that the deed was fraudulent in fact as against existing creditors. He must show the intent and design to defraud those who might thereafter become his creditors. This fraudulent design must be shown by some declaration or acts of the party seeking to defraud. But as fraudulent conveyancers do not generally disclose their designs, we generally have to rely upon a scrutiny of their acts. Unless therefore the grantor has done something or said something from which we can reasonably infer that at the time he executed the deed, it was with the intent to defraud the subsequent creditorsj the deed as to them, must stand.
It is the theory of the complainant, that the execution of the deed in controversy was the first step taken by McCullough, the insolvent, gradually to strip himself of all his property, and get the titles in members of his family, and so defraud his creditors. If we adopt this theory, its logical sequence must and will be, that all the conveyances which he subsequently made to members of his family, or connections, were fraudulent and void. There are several such referred
McCullough, the defendant, was a dealer in coal, and carried on that business in Baltimore for nearly thirty years before his failure. He married a dressmaker who-carried on a profitable business for eight or ten years-after they married, and all her earnings over necessary expenses she handed over to her husband. These earnings however were not given to him in such a manner as to establish the relation of debtor and creditor between them, nor were they taken for the purpose of investment-for her, but they became legally his. In 1881 he procured the deed to be made from Slicer to her. He, McCullough, and his wife both depose that this was done at-her request. But throwing their evidence on this point out of the question, the well established fact is that McCullough had received, a considerable amount of' money which she had .earned, and it is equally well established that in 1881, McCullough was entirely solvent. Under these circumstances a settlement on his wife was commendable and proper. The solvency at that time of the defendant is shown by the evidence of his former bookkeeper as well as his own. It also is shown by the fact that there is no creditor of defendant here complaining except Diggs, and his unpaid debt did not arise until about 1885, four years after, and his, Diggs’ claims were 'all paid up to
But in 1886 the defendant failed, and went into insolvency. His difficulties he says began in 1884, and it is certainly probable that they began some time before his failure. lie attributes his failure to stock speculations, but at any rate he failed. When he found himself in failing circumstances some, of his transactions may have been questionable. But even supposing that he may then have been guilty of fraud, it does not follow that every previous act of his was tainted with it.
If McCullough was solvent in 1880 and 1881, and if every creditor of his at those periods has been paid in full, and if his solvency continued until 1883, and if the settlement on his wife was not out of proportion to his means, and his wife had a meritorious, if not a legal claim upon him for such a settlement, and all these facts are proved, then something more must be shown besides the mere fact of a subsequent failure before such settlement can he set aside as fraudulent. But I can tind nothing in this record to connect the deed of 1881 with his subsequent failure. There is no evidence whatever that I can see, going to show that the deed of 1881 was made with the “design and intent” to defraud subsequent creditors. There is not a particle of proof that the defendant ever made a false represen
It is suggested that the deed to Mrs. McCullough cannot be supported because the answers of the defendants claim that it was her money that paid for the property, while the proof shows that it was his.
Admitting to the fullest extent the law as laid down in Betts vs. Union Bank of Maryland, 1 Har. & G., 175, and Cole vs. Albers & Runge, 1 Gill, 412, that where a deed is impeached for fraud it will not be allowed to set up a different consideration from the one expressed in the deed in order to support it, that principle has no application to the case before us.
The consideration expressed in the deed from Slicer to Mrs. McCullough is “for and in consideration of the sum of three hundred dollars lawful money, and for other valuable considerations moving the same.” This deed does express a money consideration and is a deed of bargain and sale, and the proof is that it was made fpr a valuable consideration. It is true that the consideration moved from the husband, but the deed in fact does not allege that the consideration moved from the wife. But the consideration was a valuable one.
In this case we must deal with the deed itself and the proof, and if the defendants in their answers made a mistake in point of lato in supposing that the money was hers, when it was legally his, that mistake cannot prevent the deed from operating as a voluntary conveyance, if otherwise good.
Another point made by the appellant is, that the consideration for this deed moving from the husband, the consequence is a resulting trust for the benefit of the husband, and that his creditors have now the right to take it. In this the appellant is in error.
Where the purchaser takes the deed in the name of his wife, the presumption is that a gift or an advancement was intended, and there is certainly nothing in this case tending to rebut such presumption. 1 Perry on Trusts, 142.
Recurring, however, to the main question in this case, which is one of fact, there are suspicious circumstances attending the conduct of McCullough subsequent to the deeds now in controversy. If these deeds are to be declared void it must be on account of his subsequent acts, for no one would claim that these deeds were void, viewing them as standing alone and disconnected with any subsequent conveyances; and before we can declare them so we must be convinced that these subsequent deeds were fraudulent, and it seems to me that our decision would in effect, say so, while the grantees are .strangers to the case. The whole of the complainant’s case rests upon the testimony of McCullough himself.
There is another consideration which I think is entitled to much weight in the decision of this case, and that is the question of time. McCullough parted with the title to this property in 1880, and the bill to set aside the deed was not filed until December, 1886, six years after the deed was duly recorded. Now a party is always allowed a reasonable time after the discovery of a fraud, or when with ordinary diligence he might have discovered it, to institute proceedings to correct it. Now Diggs, the complainant, had constructive knowledge of this deed in 1880, and yet continued to
But Diggs, in his bill of complaint, does not charge that the deeds were made to defraud subsequent creditors, but charges that the defendant was indebted at the time of making them, and relies upon the theory of continuous indebtedness to support his claim, and there is no proof of any other debt.
But we have before said that the theory of continuous indebtedness, as advanced by the complainant, is untenable.
Reasonable diligence is one of the conditions of obtaining relief at the hands of a Court of equity Of the soundness of this rule there can be no doubt. If parties who have good reason to assail the transfers of property, delay unreasonably in so doing, there is always danger that the rights of innocent third parties may he affected. Therefore equity demands that reasonable diligence that the nature of the case before it demands. I do not think that such reasonable diligence is shown when one merchant, dealing with another, and both residents of the same city, and both dealing in the same article, stands by for five years after a deed is put on record, before he complains of it, and who only complained of it when he did, because his customer had become insolvent.
I think the decree should he .affirmed.
(Filed 9th January, 1889.)