Manning v. Carruthers

| Md. | Mar 24, 1896

Fowler, J.,

delivered the opinion of the Court.

The appellee, Charles J. Carruthers, was engaged in the plumbing business in the city of Baltimore. On the 1 ith of October, 1886, he was ■ married to the appellee, Emma W. Carruthers, and three years thereafter, being embarrassed and having lost his capital, and being unable to pay his creditors, he transferred his business to his wife, and thereafter conducted it for her as her manager and agent. From the time of the marriage until 1894, when the bill in this case was filed, the business was continued, the wife from time to time acquiring, not directly from her husband, but from third.parties, a number of pieces of leasehold property, amounting in value to about $15,000. In the meantime there was no visible sign of any change in the management or ownership of the business having taken place, although the appellees claim that the wife became the owner of it in September, 1889. The husband continued in most respects to be the ostensible, as we believe he was the real owner of the business which he pretended he was carrying on for his wife. His name, until shortly before these proceedings began, appeared in the directory as the person who was the owner of and transacting the business, and the name of the wife never did so appear. He drew checks in his own name, and handled the money earned in the business as though it were his own. He never received any salary—fiis compensation being his board and clothes and some “ money to treat.”

This statement of facts alone is sufficient to arouse the suspicions of the most credulous, and we think there is ample proof to be found in the record before us to demon strate that the alleged transfer of business, together with the various conveyances, of property, constituted a scheme which was resorted to for the purpose of avoiding the payment of creditors, whether subsisting or not. In the case of Diggs v. McCullough, 69 Md. 592" court="Md." date_filed="1889-01-09" href="https://app.midpage.ai/document/diggs-v-mccullough-7897729?utm_source=webapp" opinion_id="7897729">69 Md. 592, it is said: “These successive conveyances and pretended sales to which we have alluded, were but devices *• * * 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.”

It is often said that fraud is constantly assuming new forms and that for this reason it is difficult to detect; but in this case we find that an old and well-known device 'has been adopted. One of the witnesses called to testify for the appellees said that he had some business transactions with Mrs. Carruthers in 1889, and on cross-examination he explained that the reason he supposed he was dealing with the wife rather than the husband was because he knew there was a judgment against the latter, and the witness did not think Carruthers -would carry on business in his own name with a judgment hanging over him. So common, indeed, has the device adopted in this case become, that he who avails himself of it must, when his creditors attack him, be prepared to show that his conduct is fair and honest. In the case of Seitz v. Mitchell, 94 U. S. 583, Justice Strong delivering the opinion of the Court, said: “ Such is the community of interest between husband and wife; such purchases -are so often made a covér for a debtor’s property, are so frequently resorted to for the purpose of withdrawing his property from the reach of his creditors, and preserving it for his own use, and they hold forth such temptations for fraud that they require close scrutiny. In a contest between the creditors of the husband and wife there is, and there should be, a presumption against her which she must overcome by affirmative proof * * * *. To hold that conveyances thus taken and thus paid for are sufficient to protect the property against creditors of an insolvent debtor would be making fraud both profitable and easy.”

The attempt made by the appellees to vindicate their conduct cannot succeed. It is conceded that at the time the husband pretended to retire from the management of the business he was insolvent. There is no satisfactory evidence in the record to show that the money with which the property was purchased came or could have come from any other source than the profits or earnings of the husband’s business. And having thus, from time to time, stripped himself of all his property by having it, as he purchased it, conveyed to his wife, he made application-for the benefit of the insolvent law, and was duly declared an insolvent without any assets whatever. Under these circumstances we think it our duty to aid the appellant, who, as trustee in insolvency is the representative of all the husband’s creditors, in his effort to reach the property standing in the wife’s name and purchased with the husband’s money, so as to subject the same to the payment of the husband’s creditors.

In order to avoid the consequences of the conclusion we have reached, it is contended in the first place that by virtue of the Act of 1892, ch. 267, these proceedings to set aside the conveyances to the wife are barred. But such a position is not tenable. The statute in question provides that, “ no acquisition of property passing from the husband to the wife after coverture shall be valid if the same has been made or granted to her in prejudice of the rights of his subsisting creditors, who, however, must assert their claims ■within three years after the acquisition of the property by the wife or be absolutely barred.” Art. 45, sec. 1, Code P. G. L. It is clear that the construction placed upon this provision of the Code by the appellees would entirely destroy the right of action which was vested in the subsisting creditors at the time it was adopted, and for this reason, if for no other, the suggested construction cannot be adopted by us, unless required by express .terms. But we find 'no such constraining language in the statute. On the contrary, we think it clear that the Legislature intended the enactment to be construed as prospective and not as retroactive—especially as to give it the latter effect would render it unconstitutional, as being an attempt to destroy vested rights of action. Isaac v. Jones, 21 Md. 433 ; Williar v. Balto. Butchers' Loan and Annuity Asso., &c., 45 Md. 548; Garrison v. Hill, 81 Md. 551" court="Md." date_filed="1895-06-20" href="https://app.midpage.ai/document/garrison-v-hill-7899442?utm_source=webapp" opinion_id="7899442">81 Md. 551. In the case last cited it was held that the Act of 1894, ch. 405, which provides that no will shall be subject to caveat or other objection to its validity after the expiration of three years from its probate, must be construed as prospective, because the Legislature could not rightfully give to it a retroactive effect, and that therefore under that Act proceedings against wills probated before the Act was passed must be commenced within three years from the date of the passage of the Act. And we think the same rule of construction should be applied to the provision of the Code we are ■now' considering. Although the terms are general, showing that all acquisitions of property passing to the wife from the husband after coverture, if in prejudice of the rights of subsisting creditors were included, yet inasmuch as the Legislature had no power to destroy the right of action of the creditors, which was vested in them when the Act of 1892 was passed, to institute proceedings to set aside the conveyances to the wife which were made before the passage of that Act, “ we think,” as was was said in Garrison v. Hill, supra, “ that the limitation fixed by the statute should commence to run when the proceedings to affect the validity of a will is first subjected to the operation of the statute, which in this case is the date of the passage of the Act.” It is apparent, therefore, that under this, construction of sec. 1, Art. 45, of the Code, these proceedings are not barred, for they were commenced within three years from its adoption.

But, secondly, it was urged on the part of the appellees, that under the law of this State (Code, Art. 45, sec. 7), a married woman has a right to engage in business as a feme sole trader, and to invest and re-invest the profits of said business to her sole and separate use—free from the debts of her husband. But if we are correct in the conclusion we have drawn from the testimony, the wife in this case was not engaged in a bona fide business as a feme sole trader, so as to be protected under the provision of the Code referred to. Neale v. Hermans, 65 Md. 475 ; Poffenberger v. Poffenberger, 72 Md. 321" court="Md." date_filed="1890-06-18" href="https://app.midpage.ai/document/poffenberger-v-poffenberger-7898115?utm_source=webapp" opinion_id="7898115">72 Md. 321.

And, finally, the appellees have taken refuge under a plea to the jurisdiction, contending that the Insolvent Court, and not a Court of Equity, is the proper tribunal to entertain an application to set aside fraudulent conveyances like those here attacked, and to sustain this view the cases of Thomas v. Brown, 67 Md. 517, and Cross v. Hecker, 75 Md. 574" court="Md." date_filed="1892-03-16" href="https://app.midpage.ai/document/cross-v-hecker-7898603?utm_source=webapp" opinion_id="7898603">75 Md. 574, were cited. It was held in both of these cases that the Insolvent Court, and not a Court of Equity, is the proper tribunal to distribute the estate of the insolvent— subject to all liens. We find nothing in them in conflict with the general rule, everywhere acknowledged, that a Court of Equity has jurisdiction to set aside fraudulent conveyances. In Diggs v. McCullough, supra, it is said that the trustee in insolvency, representing all the creditors, “may undoubtedly sustain any proceeding which the creditors might prosecute, to vacate fraudulent conveyances made by the insolvent.” This general rule, will, of course, apply equally as well to the case we have here,. where the deeds were made by third parties to the wife, and the purchase money was paid by the insolvent husband in fraud of his creditors.

It follows from what we have said that the appellant was entitled to the relief prayed, and the decree dismissing his bill must be reversed. We should say that the deed made by the appellee, Charles J. Carruthers, to Emma W. Carruthers, before their marriage, is not attacked, all intention of so doing having been disclaimed at' bar; nor are we now concerned with the transactions of the appellees with the Frederick Avenue Building Association which are mentioned in the bill.

(Decided March 24th, 1896).

Decree reversed and cause remanded.