Logan v. Brick

Harrington, Chancellor. Part of the relief sought by this bill is that the mortgages held by Rachel Rogers against the property in controversy prior to the conveyance of it by John R. Brick to his son, may be set aside, on the ground of fraud in those mortgages. But Rachel Rogers by her answer positively denies the alleged fraud, setting forth the consideration of the mortgages, and the answer is supported by evidence. The creation of both of these mortgage liens on Bombay Hook Island was long prior, in point of time, to the conveyance of that property to Edmund Brick, the Pearson mortgage having been executed in January, 1848, and assigned in October, 1850, and the mortgage held in trust for Reeves made in 1849. They have no connection with the principal transaction which forms the subject of investigation in this case, and I have no hesitation in deciding that there is nothing established with reference, to them, or to either of the mortgage securities executed prior to the convey — 215 — anee of this property to Edmund Brick, to impeach their validity or impair their lien to the amount which remains due upon them respectively, which amount is not, however, at least in the Ooxe mortgage, the full amount for which it was given. I decide nothing as to what is due on these mortgages, but will simply dismiss the complainant’s bill so far as relates to them and decree that they are valid securities. But, with regard to the conveyance of July 1st, 1851, ' from John S. Brick and wife to his son Edmund Brick, I am of opinion that it was made under circumstances and for a consideration that will not sustain it in a court of equity as against creditors. And this, not because of any incompetency in a father to convey to his son, nor on the ground of actual, moral fraud, done or contemplated; but because it was a voluntary conveyance, made by a person in failing circumstances, being largely indebted to the complainants and others, and without any other consideration than the security furnished by a part of the property itself, upon time, which would delay, if not otherwise injure, these creditors. Such a conveyance is void by the Statute of 13 Elizabeth, even without actual fraud contemplated, though if made by a person on the eve of insolvency it is evidence of intended fraud. It puts the property out of their power, as a resort for the payment of existing debts, which a debtor has not a right to do, unless by a sale bona fide and for a valuable consideration. A father may advance his son by a conveyance of his land, even without other consideration than the relation between them, which is a good, though it is not a valuable, consideration; but he must do so with due respect to the rights of others, and if these he injured the conveyance is void as to them. If the grantor be indebted at the time, or is about to become indebted,and act with a view to protect his property from" such, debt—much more if he be on — 216 — the verge of insolvency—he cannot, by a conveyance to his son, deprive his creditors of their right to proceed against his property. The insertion of a nominal consideration, however adequate, secured only by new liens on the land and postponing the payment of the debts, does not change the character of the transaction. It is essentially a voluntary conveyance, affecting the rights of creditors, and is void as to them; and, being avoided, it leaves the property liable to the grantor’s debts, as if it had not been made. It was argued,indeed, by the solicitor for John It. Brick, that his answer denying the fraud, being responsive in this respect to the bill, was conclusive, unless rebutted in the usual mode of outweighing such denial; that the gist of the matter was the intent with which the conveyance was made, and that unless fraud was intended it could not exist. The answer to this is that, without any proof of intention, the fraud which vitiates this transaction attaches to the conveyance itself, as one which operates in fact to the injury of creditors, and is, therefore, prohibited by the statute of 18 Elizabeth as legally fraudulent. I might, therefore, decide the case on this principle; but there is more in it to make this conveyance obnoxious in a court of equity. The case is thus far made out by the bill and answers, which do not set up any other consideration, and which admit the indebtedness though not the insolvency of John B. Brick at the time. The answers deny that there was any fraud in the conveyance, either actual or purposed; but the transaction itself contravenes the just rights of creditors, at least to the extent of hindrance and delay, which makes it legally fraudulent and void. And,on the proof,it appears that John B. Brick was largely indebted at the time and rapidly approaching a state of insolvency, which he reached in a few months, and that both father and son were involved in fhe same calamity. — 217 — Besides the very large indebtedness existing by bond and mortgage, it is in proof that John R. Brick was engaged in business transactions with Elijah Pugh, with Pugh and Brick, Bowers Lowber and others, in the course of which he was throwing out his negotiable paper almost without limit and on a foundation that threatened insolvency. His notes, checks and drafts, placed in the hands of Elijah Pugh to raise money, exceed $23,400, in the two months immediately preceding this conveyance; and those maturing in May, June, July, August and September, just before and after it, amounts to near $40,000. There can be no doubt that on the 1st of July, 1851, John R. Brick was largely indebted, and that his liabilities were increasing by his own act, so that he was rapidly approaching insolvency; and he did become insolvent shortly after. At this juncture he made a conveyance to his son of all his land in Delaware, for the nominal consideration of $25,000, and took mortgages on a part of it for $15,000, leaving it subject to the payment of prior liens created by himself. These mortgages he turned into cash by assignment to John B. Myers. It is true, that he alleges in his answer that the money so raised was applied to the payment of his debts; but there is no proof on this subject, and the objection goes beyond this to the conveyance itself, which is legally void as being in fraud of creditors. We next inquire whether John B. Myers is affected by this fraud, so as to be deprived of the benefit of the securities assigned to him? The bill "charges him with complicity in the fraud; with being a mere trustee of John R. Brick and an agent with Edmund Brick to carry out the object of John R. Brick in putting his property beyond the reach of his creditors; or, failing proof of this complicity, the argument insists that John B. Myers had such knowledge, or means of knowledge, as he was bound to — 218 — avail himself of before advancing money on these securities and thus making them available as the means of carrying out a conveyance fraudulent in law against creditors. The answer of' John B. Myers denies this knowledge and asserts that though John R. Brick might have really been in the failing condition established by the proof in the case, this was not publicly known at the time, and that the advances made to him were bona fide, upon unsuspected securities, in the usual course of cash loans actually advanced. I am of opinion that there is nothing in the proof in this cause to discredit the answer, and I cannot equitably relieve the complainants against these securities, which were taken for a valuable consideration and without notice of the objection to which the original conveyance between John R.-Brick and Edmund Brick was liable. But these securities were taken by John B. Myers as cumulative, and in addition to mortgages which he already held on Philadelphia property as security for advances to Brick; so that, in fact, by understanding of the parties as well as bv the rules of equity, he ought first to resort to the Philadelphia property 'for payment, and, failing that, to enforce these mortgages against Bombay Hook Island for what may remain unsatisfied. The rule is that when a party has two funds out of which he can satisfy his debt, and another creditor fias a lien posterior in point of time on one of the funds only, the first creditor will in equity be compelled to resort to that fund which the junior creditor cannot touch, in order that the junior creditor may avail himself of his only security, when it can be done without injustice or injury to the debtor or creditor. 19 Johns. Rep. 492. Let a decree be entered in accordance with the prayer of the bill, declaring void the conveyance, made July 1st, 1851, from John R. Brick and wife to Edmund Brick for BombayHook Island; also declaring void the four mort — 219 — gages executed by Edmund Brick to John B. Brick in consideration of said conveyance, saving the same as liens in the hands of John ,B. Myers, who is an assignee bona fide, for a valuable consideration and without notice, to the extent of his advances on the security of these and the other mortgages, amounting to $28,664.00; these mortgages to stand good to him only for what he may fail to realize out of the prior security taken for such advances on the Philadelphia property in Philadelphia ; the bill to. be dismissed as to the Pearson mortgage for $750,00 assigned to Bachel Bogers, and the Edmund Brick mortgage for $1233.34, which she holds in trust for Joseph Beeves; the costs to be paid by the defendants, John B. Brick and Edmund Brick.