Ferguson v. Hillman

Tatloe, J. After a careful consideration of the evidence given upon the trial of this action, we are constrained to say that the findings of fact by the learned circuit judge are sustained by the evidence, and we see nothing in the record which would justify us in setting aside such findings, or any one of them. The finding as to the value of the real estate conveyed is, perhaps, the most questionable of them all, and yet that is certainly sustained by the evidence given on the trial; and if the fraudulent character of the transaction were based solely upon it, it would probably be sustained by this court under the rule so frequently stated, that this court will not set aside a finding of fact unless it be against the clear preponderance of the evidence. But, from an examination of the whole case, it is clear that the question of the value of the real estate conveyed, as compared with the consideration claimed to have been paid therefor, was not the only nor the most satisfactory reason for declaring the transaction fraudulent and void as to the creditors of Matthews not provided for by the conveyances. The evidence clearly establishes the — 189 — fact that Matthews was in embarrassed circumstances and unable to pay his debts; that Hillman was well acquainted with all the facts; and that, knowing all the facts, he took conveyances from Matthews of all his real estate not exempt from execution, paying therefor nothing except the mortgages and judgment liens thereon, and the debt of one creditor, in addition to the debt due to JHlTma/n himself. At the same time he took two chattel mortgages upon all the exempt personal property, with trifling exceptions, and to make a consideration for such mortgages he gives his promissory note for $3,000, due in three or six months, and in exchange for his note of $3,000 took two notes of Matthews, one for .$1,500 and the other for $2,000, payable at a future date, and ¡the payment of these notes is secured to Hillmcm by the chattel mortgages. The $500 difference between the notes is claimed to be a debt due from Matthews to Hillmcm. These pertinent facts, which are undisputed, and which have in themselves a strong tendency to establish a fraudulent intent as to the creditors not provided for, are supplemented by a mass of other testimony, more or less satisfactory, all tending to establish the unfairness of the whole transaction as to the unprotected creditors of Matthews, and the intent to defraud or hinder and delay them in the collection •of their demands against Matthews. Upon a consideration of all the evidence, we have no hesitation in saying that the findings of fact are fully sustained, and must stand as the •basis of the judgment which should be rendered in the action. 'The only difficulty we have with the case is in the form of ■the judgment rendered. Was the plaintiff entitled to a personal judgment against the appellant for the amount of his claim against the defendant Matthews not exceeding $1,500? 'Thb learned counsel for the appellant very earnestly contends that no such judgment should have been entered. The judgment is no doubt an unusual one in a creditor’s action, ■and yet there can be no good reason assigned why it ought — 190 — not to be rendered, provided the evidence shows that the fraudulent grantee or mortgagee has received that amount of money as the proceeds of the property fraudulently transferred to him, or upon his fraudulent chattel mortgages. The rule of law is well established by the courts, that a grantee of real or personal estate, when it is shown that the purchase was made with intent to defraud or to hinder and delay creditors, has no equity as against such creditors to be protected for the amount which he actually paid on such purchase. See cases cited below. ■ Under this rule it is clear that if the personal property mortgaged to Ilillman had remained either in his hands or in the hands of Matthews, it would have been subjected to the payment of the plaintiff’s judgment notwithstanding he had paid his note for $3,000,, given as the consideration for the mortgages, or if his note had been transferred to a bona fide holder so that he would be compelled to pay when due; or if Hillman had in fact loaned to Matthews $3,000 in cash and taken the chattel mortgages to secure the payment of the money so loaned, yet, if the loan was made and the mortgages taken to hinder, delay or defraud the creditors of Matthews, the- mortgaged property would be subject to the claims of the creditors of Matthews, and Hillman would have had no equitable claim to a preference for the money so loaned. The reason and justice of this rule are apparent when we consider the effect of any different rule upon the rights of the creditors. If the fraudulent grantee can be protected for the amount actually paid by him at the time of the fraudulent transfer, then this would happen: The fraudulent debtor could make a sale with intent to avoid the payment of his debts, take the money and leave the country, and the purchaser have knowledge that he intended to do so, and yet be protected for the money so paid and appropriated. A rule which would lead to such results cannot be tolerated by courts. The rule as above stated has been recognized and — 191 — adopted by this as well as other courts. Gardinier v. Otis, 13 Wis., 460; Stein v. Hermann, 23 Wis., 132; Avery v. Johann, 27 Wis., 246; Union National Bank v. Warner, 12 Hun, 306; Briggs v. Merrill, 58 Barb., 389; Fullerton v. Viall, 42 How. Pr., 294; Goodhue v. Berrien, 2 Sandf. Ch., 630, 636. See also a long list of authorities upon this question cited by Mr. Bump in his work on Fraudulent Conveyances, p. 198, note 2; May’s Stat. Eliz., 73, 74. If the fraudulent grantee in possession of the property of the debtor cannot be protected for the money or other consideration he may have given for the transfer, as against the creditors of such debtor, it would seem to follow as a necessary consequence that such grantee cannot be protected in the possession of the proceeds of such property received by him on a sale thereof. The property in the hands of the fraudulent purchaser is held by him in trust for the creditors of his fraudulent vendor, and when the property is converted into money the money is impressed with the same trust. The original conveyance being void as to creditors, no title as to them ever passed to the grantee; and if he sells it and receives the money, he must hold the money for the benefit of the creditors. In equity such money in the hands of the fraudulent grantee is held for the benefit of the creditors; and, although they may not be able to maintain an action at law for money had and received for their use, because they were never the owners of or had the title to the property which has been converted into such money, yet a court of equity, having all the parties interested before it, may make such order as to the application thereof as would be just. If the court in a proper case would have the power to order the fraudulent grantee to pay money received by him in satisfaction of the debt of a creditor, then the fact that it directed a personal judgment to be rendered against him for the money so received, and that the amount be collected on execution, would be a mere matter of form, which does not prejudice his rights, and of which he cannot complain. — 192 — The case of Fullerton v. Viall, 42 How. Pr., 294, was a ■case very much like the present in its facts. In that case it ■ appeared that the defendant had taken a conveyance from a debtor of some real estate upon which there was a mortgage ■ of $800, agreeing to pay in addition the sum of $1,000; $500 being a debt due from the judgment debtor to the grantee, and $500 was paid to the judgment debtor in cash. Before the creditors’ suit was commenced the grantee had sold the ¡real estate so conveyed to him to a bonaficle purchaser, and -realized from such sale, as the court found on the trial, the ■sum of $2,210. The court found that the conveyance was made in fraud of the ■ creditors of the grantor, and that the ■creditors were entitled to judgment against the defendant, the fraudulent grantee, for the value of the premises conveyed to him, over and above the prior valid incumbrances ■thereon. In this case the recovery was not limited to the •amount received by.the fraudulent grantee on the sale, but his liability was held to extend to the value of the property fraudulently received by him and which he had put beyond ■the reach of the creditors of his fraudulent grantor, subject ■only to prior valid incumbrances thereon. He was neither •allowed credit for his own debt, which constituted a part of •the consideration he gave for the same, nor for the $500 he paid to his grantor in cash. This case went to the court of ■appeals and was there affirmed, but does not seem to have been reported. The case is, however, cited and approved in ■the case of Union Nat. Bank v. Warner, 12 Hun, 306-308. In the case at bar there is an abundance of evidence showing that Hillman received from the sales of the property, which was found to have been fraudulently conveyed and mort.gaged to him, a sum far exceeding the sum of $1,500, the • amount which the court charged him with in the judgment. 'He admits that he sold one of the parcels of real estate for the sum of $500, and the barrel stuff for the sum of $494; •and it also appears pretty clearly that he received the whole ■of the $2,000 note of the debtor, Matthews, which was — 193 — secured by one of the chattel mortgages. All of this latter •sum. was received after the commencement of the plaintiff’s .action. Under the rules of law above stated he would have no right to retain the money received on the $2,000 chattel mortgage to indemnify himself for the money he paid in discharge of his $3,000 note given to Matthews. The chattel mortgages being fraudulent and void as to the creditors of Matthews, he cannot be credited with any sums which he may have paid as the consideration of such mortgages, as a set-off against what he has received upon such mortgages. Notwithstanding the mortgages, the property covered by them was still the property of the judgment debtor as to his «creditors, and all money received by Hillmcm arising out of the sale of such property, and received by him, would remain in his hands as a fund held in trust for such creditors. It is evident, however, that the learned circuit judge did not intend to hold the appellant liable to the plaintiff to the extent above suggested, but only for such sums as it appeared from the evidence he had received upon such mortgaged property in excess of what the evidence showed had been applied to the payment of the debts of Matthews either by Matthews or by Hillmcm. Holding this view of the case, the learned judge found as a fact that the appellant had received at least the sum of $1,500, upon all of the transactions between Matthews and Hillman, over and above what had been applied to the payment of Matthews’ debts, and so charged him with that sum only. This view of the case .seems to be supported by the evidence, and as it is more favorable to the appellant than the strict rules of law appli•cable to the case would justify, he is not in a position to ■complain of that finding or of the judgment based thereon. . Ve think the judgment of the circuit court is well sustained by the evidence and should be affirmed. By the Gov/rt.— The judgment of the circuit court is ■affirmed.