Frazer v. Western

The Chancellor. Several questions were raised and disposed of by the assistant vice chancellor, which it is not neces — 236 — sary now to consider, in consequence of the "conclusion at which I.have arrived, that the defendant Western,is entitled to protection as a bona fide purchaser without notice of the fraud, if any there was, in the conveyance Of August, 1828, to E. K-. Collins in trust. Nor is it now necessary .to consider the question, whether the assistant vice chancellor was authorized, at the hearing of the cause, to allow the complainants to amend their bill, in a part which he deemed essential, and at once to proceed to a decree; without giving to the appellant an opportunity to answer the new case made by such amendments. The bill, among other things, charges that the title of Western to the premises is'fictitious, and was created without any valuable consideration; with a view to defeat the rights of the complainants. And it calls upon hito to set forth the nature and origin of his title, what he paid for the same, and whether the same was not made to defeat the complainants’ rights in the premises. His answer is, therefore, directly responsive tó the bill, and as it is not disproved, but on the contrary is sustained by one witness in its material parts, it is evidence in his favor of the facts contained therein, in respect to his title and the consideration thereof. He denies that the conveyance to him from Mrs. Collins, was without consideration, or that it was made in trust for her, or that she was to receive any benefit therefrom, by any agreement, express or implied, between her and him; but on the contrary, lie insistS that the conveyahce to hito was for his own use and benefit. He also states particularly what the consideration was, nhd how it was paid ;■ that, he had a judgment against her, which was a lien upon her in terest in the property, to the amount of $326, and another debt against her of $300, for which he held a lien upon valuable papers in his-hands; that she applied to him td purchase the premises in the fore part of April, 1833, after the death of her husband, alleging that she was the owner thereof; that she produced to him the original trust deed, as the evidence of her right to sell the premises; and that he had no notice of the matters charged in the complainants’ bill, except sti much thereof as appeared Upon the face of the ttust deed. He further states that he thereupon — 237 — contracted with her for the purchase of the premises, and paid her therefor $1400 in cash, and paid the residue of the consideration by discharging his judgment against her, and the debt of $300, at the same time giving up the papers upon which he had a lien for such indebtedness: and that she then gave to him a full and absolute certificate entitling him to the property according to the terms of the trust deed, and also a full and absolute conveyance from her of. the premises, under which he insists that he is the legal as well as the equitable owner of the property. He also denies that the grantor, in the deed of trust, was insolvent, or that such deed was voluntary and without consideration, according to the best of his information and belief. The answer therefore contains a substantial denial of all knowledge of the complainants’ equitable rights, or that the first deed was fraudulent and void, as against the creditors of the grantor, at the time the defendant paid the purchase money and obtained his titla> to the premises. The assistant vice chancellor appears to have based his decree upon the erroneous supposition, that the fact that the consideration mentioned in the deed of trust was merely nominal, was constructive notice of the fact that.the grantor was insolvent; and that the conveyance was made for the purpose of defrauding the creditors of such grantor. In.other words, that there cannot be a bona fide purchaser from a person who is entitled to property by deed of gift, or by a voluntary settlement, in case it after-wards turns out that the grantor was indebted to such an extent that the conveyance, or voluntary settlement, would operate as a fraud upon his creditors. This, however, is not a correct exposition of the law upon this subject. The law sanctions a conveyance founded upon the consideration of blood or of marriage merely. The legal presumption therefore is, that such a conveyance is valid, and not a fraud upon the rights of any one. And the mere fact that the purchaser, from the holder of such a title, hag notice that it was not founded upon a. pecuniary con-, gideration,. is not sufficient to make it his duty, at his peril, to inquire whether the title of his grantor was not fraudulent. On the contrary, he has a right to act upon the legal presumption — 238 — that such a deed of gift, or voluntary settlement, .vas honestly made; until some other fact is brought to his knowledge to raise a suspicion in his mind that the conveyance was intended to defraud some one. In the present case, there is some evidence which renders it at least probable that I. G. Collins was not able to pay all his debts, in August, 1828, when the trust deed was executed ; especially if he had no property except his interest in the firm in which his son was a copartner, and had no capital in that firm. But there is not a particle of evidence in this case that Western, who purchased of Mrs. Collins five years after that time, was acquainted with her husband, in his lifetime, or with his circumstances in 1828; so as to make it bis duty to inquire whether I. G. Collins, or his son who was the grantee in the deed of trust, had not intended to commit a fraud upon the creditors of the former, by the execution of this deed in favor of the wife. The only remaining inquiry therefore, is, whether the appellant acquired the legal title to the premises in question, so as to entitle him to protection as a bona fide purchaser without notice. The legal title, in 1828, and under the law then in force, was vested in E. K. Collins, the trustee; and the cestui que trust, or her grantee, previous to 1830, would only have had an equitable interest in the property. But upon a careful examination of the provisions of the revised statutes, I think the appellant acquired the legal title to the premises, under the conveyance from Mrs. Collins in April, 1833. The deed of 1828 conveys the premises to the trustee upon a mere naked trust; in the first place, for the use and benefit of .Mary Collins and her heirs and assigns forever. It. then contains the further trust that the trustee shall convey the premises to such person or persons as she shall by will, or by her certificate in writing, during her life, and after the death of her husband, designate; and if no such last will and testament shall be made, or certificate given', then to convey the premises to her heirs, after her death. The trustee, then, even before the revised statutes, held the premises as a mere naked trustee of the legal estate; and with a bare power to convey to her devisee, grantee, or heirs, either during her life or afterwards. I think, therefore, — 239 — that the equitable interest of Mrs. Collins was turned into a legal estate in fee, in the premises, by the operation of the forty-seventh section of the article of the revised statutes relative to uses and trusts; (1 R. S. 727;) especially after the death of the husband. That section provided that every person who by virtue of any grant, assignment or devise, then was, or thereafter should be, entitled to the actual possession of lands, and to the receipt of the rents and profits thereof, in law or in equity, should be deemed to have a legal estate therein ; of the same quality and duration, and subject to the same conditions, as his beneficial interest. The next section, however, declared that the preceding section should not divest the estate of any trustees in any trust then existing, where the title of such trustees was not merely nominal, but was connected with some power of actual disposition or management, in relation to the lands which were the subject of the trust. The object of this last section undoubtedly was to preserve the legal title in the trustees, in trusts which had already been created, wherever and so long as the continuance of such legal title in them was necessary to carry into effect any of the objects of the trust; and where such objects could not be carried into effect if the whole legal title was immediately vested in the cestui que trust. Although the whole bene-, ficial interest in the trust property in this case, therefore, belonged absolutely to Mrs. Collins, with the single exception that she .could not alienate the same during the joint lives of herself and her husband, without his consent, as well as by the concurrence of the trustee, there does not appear to have been any active trust, or power of disposition, which was necessary to be performed by the trustee, after the revised statutes went into operation ; except the power in trust to convey the legal title to the devisee of Mrs. Collins, in case she died before her husband. And it is even doubtful whether the cestui que trust would not have had the right to devise the premises .during the life of her husband, so as to vest the legal title in her devisee without any conveyance from the trustee; under the provisions of the revised statutes relative to powers, in connection with the operation of the forty-seventh section of the article relative to uses — 240 — and trusts. That last mentioned section provides that the cestui que trust shall have a legal estate in the land, of the same quality and duration, and subject to the same conditions, as his beneficial interest therein. Here one quality of the beneficial interest of the cestui que trust was that she had the power to dispose of the property, by devise, notwithstanding.her coverture. Such a power, by the express terms of the article of the revised statutes relative to powers, may be given to a married woman;, to enable her to dispose of her freehold estate by deed or will without- the concurrence of her husband. (1 R. iS. 732, § 80. Idem, 735, § 110.) But even if the continuance of the legal estate in the trustee, in this case, was necessary for any purpose during the life of the husband of the cestui que trust, she became absolutely entitled to the land, for all purposes, upon the death of her husband. And the estate to which she was then-entitled in equity, under the provisions of the trust deed, was an ■absolute right to the possession of the property, and to the receipt of the rents and profits thereof; with a right to dispose of the same to any person, by deed or will. And in case she had died without will, and without aliening it in her lifetime, it would have descended to her heirs at law; in the same manner as if the legal title had been conveyed to her at the time she acquired her equitable interest in the property by the deed of trust. She had therefore the whole legal title, when the appellant made his purchase. And he obtained such title by her deed to him in April, 1833, and before the commencement of this suit; which suit appears to have been the first information that Western had. of the claim that the trust deed of August, 1828, was intended to defraud creditors. Since the reversal of Chancellor Kent’s-decision in the.case of Roberts v. Anderson, by the court of dernier resort, (3 John. Ch. Rep. 372, 18 John. Rep. 515, S. C.) it is no-longer an. open question, in this state, that a bona fide' purchaser of property, from a previous grantee to whom it had been conveyed for the purpose of defrauding creditors, is entitled to protection against the claims of the creditors who were intended to be defrauded by' the first conveyance. And the-appellant in this case being a bona fide purchaser, and entitled. — 241 — to such protection, the decree appealed from must be reversed ; and the complainants’ bill must be dismissed with costs, both upon this appeal and upon the proceedings in the original suit, to be taxed. And as a necessary consequence of this decision, the complainants must pay the costs of the guardian ad litem of the infant defendants, who have been brought before the court as parties to this suit.