McElwee v. Kennedy

The opinion of the Court was delivered by Mr. Justice Jones. The plaintiff, as a judgment creditor of Kennedy Brothers & Barron, of which firm the defendant, James R. Kennedy, was a member, after nulla bona, brought this action to vacate two land deeds by the said James R. Kennedy to1 his wife, the defendant, Eliza J. Kennedy, as in fraud of plaintiff’s rights under the Statute of Elizabeth. The Circuit Court sustained both deeds as made upon good consideration and bona tide, and dismissed the complaint. 1 In reviewing the findings of fact by the Circuit Court in a cause in equity, it is now settled that this Court may reverse such findings, when the appellant satisfies it that the preponderance of the evidence is against the conclusion of the Circuit Court. Finley, Receiver, v. Cartwright, 55 S. C., 198. After carefully considering the evidence under this rule, we do not feel warranted in reversing the Circuit Court on the findings of fact which must control this case. The Circuit 'Court has found that the deed for the 307 acre tract was executed and received in part payment of a bona fide debt held by the grantee against the grantor, and that [169] the deed for the 443 acre tract was made and received for the purpose of executing a trust in reference thereto, and also in part payment of a bona fide debt; that neither grantor nor grantee intended thereby to- hinder, delay or defraud the creditors of the grantor; that the land was conveyed at a fair valuation, and that there was no secret trust or agreement by which the grantor in said transactions was to obtain some advantage at the expehse of his creditors. Concurring as we do in these conclusions, a judgment for affirmance must follow. 2 To avoid a deed for fraud at common law, or under the Statute of Elizabeth, it must appear that the deed is without consideration or mala fide. It is not questioned that at the time of the conveyances the grantee was a bona fide creditor of the grantor to the amount of $12,100, evidenced by a note dated January 2d, 1893, and payable six years after its date. This note was credited with $2,540, as the consideration of the deed for the 307 acre tract at the date of its execution, January 15 th, 1896, and with $4,500 as a consideration of the deed for the 443 acre tract at the date of its execution, February 25th, 1896. There is no doubt that the release of a bona fide debt constitutes a valuable consideration. On this ground, then, neither deed is invalid for want of consideration. 3 Were the transactions bona fide? Independent of the question in reference to the matter of trust concerning the 443 acre tract, so fully considered in the Circuit decree, we see nothing in the case more than an effort by an insolvent husband to give his wife a preference over his other creditors. It is not contended that the preference in this case is obnoxious to' the provisions of the general assignment act. When not made under circumstances forbidden by that statute, the law allows a debtor to give a preference to one creditor over another, provided he does not thereby secure a direct advantage to' himself in the use of the property at the expense of creditors, as the price of such preference. Smith v. Henry, 1 Hill, 16; McPherson v. Mc [170] Pherson, 21 S. C., 261; Magovern & Co. v. Richard, 27 S. C., 272. This is true even when the debtor and creditor are husband and wife; for while transactions between husband and wife should be very closely scrutinized on account of the facility for fraud which such confidential relation affords, yet a husband may pay his wife a debt by a convej'ance of land, and such conveyance is no more a badge of fraud than with any other creditor. McGhee v. Wells, 52 S. C., 472. The evidence shows that the amount credited on the bona lide debt as the consideration of the transfer was the full value of the land. There was no evidence of ’any agreement or understanding-, secret or otherwise, by which the husband debtor should secure any direct advantage to himself m the possession and use of the property at the expense of his 4 creditors. It was not shown that he had any kind of possession of the 443 acre tract after the conveyance, and as to the 307 acre tract, the home place, it was merely shown that he continued to reside there with his wife, the grantee. Such residence was perfectly consistent with a bona fide deed to her, resulting from the marital relation and not from the deed, and so violated no right of any creditor. Trustees v. Bryson, 34 S. C., 416. 5 To annul for fraud a deed based upon a valuable consideration, it must not only be shown that the grantor intended thereby to hinder, delay or defraud creditors, but it must also appear that the grantee participated in such fraudulent purpose. Even if we were to assume that there is evidence of mala ñdes in the grantor, yet if the sole purpose of the grantee was to secure her claims, having no intent to hinder, delay or defeat other creditors, her title cannot be affected by the mala hdes of the grantor. The evidence fails utterly to' show any intent on the part of the grantee to' defraud her husband’s creditors, and merely shows a purpose to secure her own bona ñde claims. [170] Conceding the insolvency o E the firm of which the grantor was a member, it does not appear that the grantee was aware of it, and if she was aware of it, that would not show fraud [171] in her, since a bona fide creditor 'has the right to obtain a transfer of property from an insolvent debtor at a fair price, for the sole purpose of securing or paying the debt. In such a case as this, if the insolvency of the grantor, known to the grantee, is a “badge” of fraud, it is explained or rebutted by the credible evidence that the purpose of the grantee was to secure her bona fide claims, a lawful purpose and sufficient to explain all circumstances of the case. In view of this purpose, the fact that the transfers included practically all the individual property of the grantor, becomes of small importance (no question arising here under the assignment act), for the right to give and receive a preference is not limited to any particular proportion of the debtor’s property, but may extend to his whole property. Nor does it affect the grantee, that the grantor never disclosed to- his creditors the existence of the grantee’s claims. It is sufficient that the claims existed and were bona fide. Nor do we think that the fact that the note held by the grantee against the grantor, was not payable at the time of the transfers, affords any evidence of fraud. The law does not forbid a debtor to pay and a creditor to receive a debt before it is due, provided the creditor’s purpose is to receive his own debt and not to defeat or delay another’s. We have already noticed the matter relating to the alleged relation of possession of the property by the debtor after the conveyances, by showing that there was no evidence of any such possession thereof as was inconsistent with a bona fide deed of same. 7 The fact that the grantee did not have the deeds recorded within forty days after their execution, and not until within a few days before the assignment by the firm of which the grantor was a member, is not suggestive of fraud in the execution of the deeds. There was no evidence that the grantee knew that an assignment was contemplated, and no evidence that she purposely withheld the deeds from record in order to hinder, delay or defraud the grantor’s creditors. The deeds were duly recorded before [172] plaintiff acquired judgment, and the failure to record at an earlier date in no- wise affected the plaintiff’s status as an existing creditor. 8 Assuming mala ñde in the grantor, appellant contends that the grantee stands in the grantor’s shoes, because the consideration was a pre-existing debt and not coeval with the transaction. This distinction is supposed by appellant to be supported by the case of Smith v. Henry, 1 Hill, 16, but we do not SO' understand the case. In that case the Court was considering the effect of retention of possession of goods by an insolvent vendor after a sale thereof in payment of an existing debt, and held that such possession and use furnished conclusive evidence of fraud, showing that such advantage was the consideration on which the preference was given. In so far as Smith v. Henry held such a circumstance conclusive evidence, that case has been modified, and the rule is now well established that retention of possession by an insolvent vendor .after sale, while a badge of fraud, is not conclusive, and may be -rebutted by satisfactory evidence of such possession. Nelson v. Good, 20 S. C., 231; Perkins v. Douglas, 52 S. C., 132. In this case, however, as already said, there was no evidence of possession after sale, and so Smith v. Henry has no application in support of the distinction claimed. If appellant’s contention were correct, a pre-existing debt would not constitute a valuable consideration, and in a transfer based upon such consideration, it would not be necessary to show concurrence by the grantee in the fraud, if any, of the grantor. 9 We have been considering the case on the assumption of bad faith in the grantor, but we do not think the evidence warrants such a conclusion. We are convinced that the grantor intended only to satisfy the bona ñde claims of his wife, and did not intend to hinder, delay or defraud his other creditors. A mere knowledge that the effect of the preference would be to hinder or delay other creditors, is not sufficient to taint the transaction, if there be no actual intent that the preference shall have such result. [173] Appellants’ counsel frankly concede 'the' good character of both grantor and grantee, the genuineness of the note (which furnished the alleged consideration common to'both deeds), and the grantor and grantee, in doing what they did, never meant to- do what either considered a moral wrong. We have only deemed it necessary to add the foregoing in support of the decree of the Circuit Court, which is officially reported herewith. We have confined our attention to a discussion of the questions common to both deeds, but do not thereby mean to indicate any dissatisfaction with the views so fully and ably presented by the Circuit Court in reference to the trust relation between grantor and grantee concerning the 443 acre tract. The judgment of the Circuit Court is affirmed.