BARR v. HATCH, ET AL.

Equity will aid the defective execution of a power, where the contract is fair, and the power bona fide delegated.

A stranger, who purchases at a sheriff's sale, can protect himself in the same manner and to the same extent, that the judgment creditor could, had he purchased.

A conveyance by a debtor of his whole estate, whilst a suit is pending against him, is not abso. lutely fraudulent, but circumstances may be admitted to explain and justify the transaction. Where the vendor retains the possession of lands sold after the deed is executed and recorded upon a verbal understanding to pay rent, the transaction is not per se fraudulent as against creditors. A stipulation that the vendor will re-purchase the lands at the same price, within twelve months, at the option of the purchaser, is not evidence of a secret trust for the benefit of the vendor.

Where a debtor before judgment conveys lands bona fide in satisfaction of a pre-existing debt, and executes a defective conveyance, the equity of the purchaser is superior to that of the judgment creditor, and a court of chancery will compel the judgment creditor, if he obtain the legal title under the judgment, to convey to the purchaser.

This cause came before the Court, upon adjournment from Hamilton county. It was argued by WADE and HAYWARD, and N. WRIGHT, for the complainant, and by HAMMOND and BENHAM for the defendant Hatch.

Opinion of the Court, by Judge SHERMAN.

The complainant sets up an equitable title to a house and lot, in the city of Cincinnati, for which the defendant, Jerusha Hatch, heretofore recovered a judg ment, in ejectment, against him in this Court, (1 Ohio Rep. 390,) and seeks a conveyance of the legal title, and a perpetual injunction of that judgment. The questions, which have been made, necessarily lead to an examination of the facts of the case. The Miami Exporting Company, on the 18th Juue, 1821, were indebted to the complainant, then a resident of Baltimore, about fifteen thousand dollars, for the notes of the Co. before that time deposited with them. And William Barr and John Sterrett, then the general agents of Jonn T. Barr, with authority to collect and receive his debts, but without a special authority to take lands, and one of them a director of the Co., agreed with the board of directors, to take the house and lot in question, with other real estate, for ten thousand seven hundred and sixty dollars, it being all the lands then owned by the Company in fee. On the same day, the board of directors, by a resolution, authorized and directed O. M. Spencer, their president, to execute a deed in see simple, with covenants of general warranty, to the complainant, for the real estate so sold, and Spencer did, the same day, in pursuance of that resolution, execute a deed of conveyance for the land, which was immediately recorded, and the complainant's agents gave a check for the amount of the consideration money, and thereby discharged so much of the debt owing by the Company, to J. T. Barr. At the time this arrangement took place, the Miami Exporting Company were justly indebted to the state of Ohio, about nine thousand dollars, and legal process had been served on them, by which it was expected that judg ment would be, as in fact it was, obtained, at the June term of the Supreme Court, commencing on the 15th. Upon this judgment execution issued, was levied on the house and lot in controversy, and sold to the defendant, Jerusha

Hatch, on the 25th November, 1821, for 250 dollars.

At the time of the sale

upon execution, the agent of the complainant attended and gave notice to the agent of the defendant, J. Hatch, and others present, that the complainant owned the property and had a deed therefor from the Miami Exporting Company. The company continued in the possession of part of the house, it being their banking house, from the sale to Barr, to August, 1823, without any written lease, but under a parol agreement with the agents of complainants as to their rent.

At the time the order to execute a deed was made, by the board of directors, they authorized their president to execute a bond to complainant, that if he should re-convey the property within one year, they would place the amount of the consideration money to his credit upon their books.

In July, 1823, the defendant J. Hatch, commenced an action of ejectment for the house and lot in question, against the complainant, and recovered judgment, in consequence of the defective execution of the deed to the complainant, by the agent of the Miami Exporting Company.

It is shown that a fear that the property might be sacrificed, by sale upon execution, under the judgment about to be obtained by the state, was a moving cause with the Company, for entering into the arrangement for the sale to Barr.

The general principle that Courts of Chancery may supply any defect in the execution of a power, whether that defect arises from mistake, accident or ignorance, is not questioned. Whenever the intention to execute a power is sufficiently manifest, but the execution is defective, or it has not been executed. according to the terms, or in the form prescribed, equity will correct the mistake or supply the defect. When nothing has been done, or attempted to be done, toward the execution of a power, equity, in general, will not interfere, unless the instrument creating the power shall have vested or recogized, in third persons, rights to secure which the execution of the power is necessary. If the attorney or agent has attempted to execute the power, but has done it de fectively, the party claiming under it, cannot avail himself of it, at law, equity interposes its aid, upon the broad principle of relieving against accident or mistake.

It is also a well settled rule, that when an intrument, intended as a deed to convey lands, has not been so executed as to pass the estate, or vest a legal title, equity has considered it a contract for a deed, and decreed, if the consideration has been paid, the title to be perfected.

Upon either of these grounds the complainant would be entitled, as against the Miami Exporting Company, to the relief sought. Nor do they resist it, as they have neglected to answer, and permitted the bill to be taken as confessed against them. The defendant J. Hatch, (the only defendant who has answered the bill,) however contends that the sale to Barr, by the Miami Exporting Company, was fraudulent and void as against their creditors, and that her equity is equal to Barr's, and a Court of Chancery will not deprive her of any legal advantage she may have fairly obtained.

There can be no doubt that the defendant, J. Hatch, under the judgment in favor of the state, can protect herself in the same manner, and to the same extent, that the judgment creditor could, had he purchased. If the sale to Barr was fraudulent and void, as against the judgment creditor, it is fraudulent

and void as against the purchaser at sheriff's sale, under such judgment. Any other rule would compel the judgment creditor to become the purchaser, or deprive him of the benefit of his judgment and execution. No prudent person would purchase, at sheriff's sale, property previously conveyed by the judg. ment debtor, however apparent or gross the fraud attending such conveyance might be, if he was to be separated from the rights of the judgment creditor, and could not avail himself of them to protect his purchase. It is true, as has been stated in argument, that the purchaser, under execution, holds as purcha ser, and not as judgment creditor. But he holds with the benefit of the judg ment lien. If a debtor alien his lands, with the intent, and for the purpose of defrauding his creditors, such alineation, as against such creditors, is void, and the estate is considered as remaining in the debtor for all purposes beneficial to the creditor.

It may be attached, if the debtor absconded; is subject to the lien of a judg ment; and is in every way liable to be appropriated to the payment of the creditor, in the same manner as if no conveyance had been made. The purchaser at sheriff's sale acquires all the right, title and interest, in the land which the debtor had at the commencement of the judgment lien; is vested with the rights of the creditor; entitled to the same relief, and can protect his title against the frauds of the judgment debtor in the same manner, and to the same extent, that the judgment creditor might have done had he purchased. (2 John. Ch. 36.)

It is contended that the circumstances attendant upon, and connected with the sale to Barr, show that it was fraudulent as to the creditors of the M. Ex. Co., and the defendant insists that the proofs establish the following fact, upon which she relies either as badges of fraud, or as amounting to fraud in law:

First: That it was in the intention of the parties to hinder or delay the state in the collection of this debts.

Second: That the grantor was largely indebted in a suit pending, and judgment about to be obtained at the time of the conveyance.

Third: The conveyance was of all the estate of the debtor liable to execu tion.

Fourth: The grantor remained in possession after the deed, and contrary to its terms, and upon no obligatory or definite lease.

As the question of fraud must, in a great degree, depend upon a minute and careful examination and comparison of the proofs and exhibits in the cause, and upon giving to each circumstance its due weight, it can scarcely be expected that the court should detail each particular fact that may have influenced their judgment, especially when there is no probability that a case attended with the same circumstances will again occur. Such a detail would be tedious as well as useless. It will be sufficient to notice the prominent facts and circumstan

ces.

First. It is said that it was the intention of the parties to hinder and delay the state in the collection of its debt. If the proofs of the case clearly made out the fact, that the sale to Barr was a contrivance to delay or obstruct the state in the collection of its debt, it would be difficult to avoid the conclusion that it was fraudulent. But we are not satisfied that such was the intent of the parties. Spencer, the president of the company, states in his testimony,

that a fear that the property might be sacrificed by a forced sale, under the judgment about to be obtained by the state, was one moving cause for the bank to make the sale to the complainant.

It appears that his agents knew of the pendency of the suit, and one of them was then a director of the company. On the other hand, it is clearly shown that the company were then, and had been for a long time, largely indebted to Barr, who was anxious to obtain payment, which they were unable to make in cash; that his agents offered to take the property at its full cash value, and did, in fact, allow about eight thousand dollars for the house and lot now in dispute. The agents of Barr endeavored to secure the debt due him, but there is no circumstances warranting the belief that they were influenced by the wish to hinder or delay the state. The Miami Exporting Company were then in such a situation that they could not reasonably expect to retain the property, and if it should be exposed to sale, for what it would command, in cash, as it necessarily must have been, upon the judgment in favor of the state, there was a moral certainty, considering the situation of the country at that time, that it could bring but a small portion of its actual value.

That the company should fear a sacrifice of a great part of the value of the property, if sold upon execution, is probable, and that they should be influenced by that fear to accept the proposition of another creditor to allow them the full value, is equally probable, and does not indicate a fraudulent intention, to hinder or delay the state in the collection of its debt. The sale to Barr might, and probably did, produce the effect of delaying the state, in the collection of its debt, but it does not appear that that was the object the company had in view. Their intention appears to have been, to make the best disposition in their power of their property, for the payment of their debts, and we can perceive nothing imnroral or unjust in an individual, or corporation, so circumstanced that their property must soon be sold for what it will bring in cash, conveying it to a creditor for its full value, although moved to make such convey. ance by the fear of, or the wish to avoid, sacrifice. It is not every disposition of his property, by a debtor, that produces the effect of hindering or obstructing the creditor in the collection of his debt, that is fraudulent; but it is the intent with which the disposition is made, that gives a character to the transaction. If the object of the parties be to obstruct or hinder the creditor, and a convey. ance is made for this purpose, such conveyance is fraudulent and void, although a full consideration be paid. But such fraudulent intent ought to be clearly shown, especially when the conveyance is made to a creditor, in satisfaction of a just debt, and for a full consideration. In Wills v. Franklin, (1 Bin. 513,) it was held to be neither immoral or unfair to prevent a creditor, after suit brought, from obtaining a priority by his judgment. In Hendrick v. Robinson, (2 John. Ch. 283,) the chancellor, after citing and examining many of the English cases on the subject, comes to the conclusion that a debtor, in failing circumstances, may make a deed or assignment to one creditor of all his property, although it produces the effect of delaying or hindering all other creditors, when such was not fraudulent in its inception or intention.

It is also contended that the grantor, being largely indebted, and a suit pend ing ready for judgment, at the time of the conveyance to Barr, furnishes strong evidence of fraud. It was said in Twyne's case, (3 Coke 80,) and has since

been repeatedly recognized, that the pendency of suit, at the time of making sale of goods, was a badge of fraud. This, like every other badge, or indicium of fraud, while it remains unexplained, is a circumstance from which courts are warranted in presuming there is some concealed or secret trust, in favor of the vendor; or that it is a mere contrivance to cover up the property from the creditors. Pendency of suit does not of itself make any alienation by the debtor void, but when such alienation is of all, or nearly all of the debtor's property, it may furnish a strong presumption that such sale was mere pretence and contrivance to avoid payment. When the sale is made to a creditor, in payment of a debt, admitted to be justly due, and for a full and fair price, and the debt discharged, all the presumption of fraud arising from the pendency of suit by another creditor is removed. In this case the testimony clearly shows that the sale to Barr was not made with the intent of withdrawing the property of the company from the payment of their debts, but for the purpose of discharging to the full amount of its value, the claims of perhaps a favored credi

tor.

Third. The same observations are applicable to the objection that the conveyance was of all the estate of the debtor liable to execution. This is also, as is said in Twyne's case, a mark or sign of fraud, a circumstance from which, if unexplained, Courts are warranted in presuming that the sale was made for the use of the vendor, and to conceal the property from creditors; but when all the circumstances attending the sale, show that the intent of the parties was lega and honest, that the property sold was not of greater value than the debt dis. charged, all presumption of fraud arising from the fact that the conveyance embraced all the estate of the debtor liable to execution, is repelled. There is a class of cases in the English reporters where their Courts have held that an assignment, by a person subject to their bankrupt laws, in contemplation of bankruptcy, of all or nearly all of his effects, is a fraud, upon those laws, as a contrivance to avoid their effect. These decisions go upon the ground that creditors trust to those laws for an equal distribution in case of the misfortune of the debtor; that the whole object of those laws is to secure the management of the property of an insolvent debtor, by third persons and to insure a pro rata distribution, and that both of these objects would be defeated, by permitting a debtor, on the eve and in contemplation of bankruptcy, to give priority to one or more creditors, by assigning his effects. Yet there an assignment is held valid, if made at the solication of a creditor, to pay or secure a just debt, although a debtor was at the time insolvent, and contemplated an act of bankruptcy, and the effect is to prevent an equal distribution of the property of the insolvent debtor, thereby defeating the policy of the bankrupt laws. Those cases, and the principles upon which they are decided, have no application where bankrupt laws are unknown, and neither Courts of law or equity possess the power of preventing a failing debtor from giving preference to particular creditors, when there is no fraud or collusion. But the sale to Barr was not a general transfer of all the property of the company, but a conveyance of certain parcels of real estate, being all then owned by them in fee. There is no evidence of the amount or value of the personal property if any, then owned by the company, or the amount due them upon note, bond or mortgage. The fair presumption is, that it was collectively of much greater amount than the judgment in favor of the