Barber v. Wilds

Mr. Justice Robb delivered the opinion of the Court: The cause having been heard on bill and answers, all averments of fact in the answers, so far as they are consistent with the documentary evidence in the cause, must be taken as true; but it by no means follows that, because the defendants have denied any attempt to hinder, delay, or defraud the creditors of Barber, the court is precluded from finding such intent from the facts and circumstances surrounding the transactions of the parties denying such intent. Section 1120 of the Code [31 Stat. at L. 1368, chap. 854] provides “that the question of fraudulent intent shall be deemed a question of fact, and not of law.” In Means v. Dowd, 128 U. S. 273, 32 L. ed. 429, 9 Sup. Ct. Rep. 65, it was held that a similar statute in Indiana “had not changed the law on the subject, and that the court must, in the first instance, determine upon the legal effect of the written instrument, and, if that be to delay creditors, it must be rejected.” In construing a similar statute the court, in Thomson v. Crane, 73 Fed. 327, said: “A voluntary deed is fraudulent by operation of law where the facts and circumstances clearly show that [the rights of] existing creditors are thereby prejudiced, without regard to whether there was any actual or moral fraud in the conveyance.” To the same effect are: 20 Cyc. Law & Proc. p. 463; Farrow v. Hayes, 51 Md. 505; Hathaway v. Brown, 18 Minn. 414, Gil. 373; Smith v. Conkwright, 28 Minn. 23, 8 N. W. 876; Cunningham v. Freeborn, 11 Wend. 241. We conclude, therefore, that § 1120 was not intended to change, and does not change, the rule that parties shall be held to intend the natural and probable consequences of their acts. It follows that, if the inevitable consequences of a conveyance are to hinder, delay, or defraud creditors, the court must so hold notwithstanding the denial of such intent by the parties to such conveyance. The pleadings in this cause show that Barber was financially embarrassed, and that he transferred by a secret agreement [156] all his property to Albright, and that, at the time this transfer was made, Barber was indebted to the complainant. The complainant states, and the answers do not deny, that the value of the property transferred was between $1,000,000 and $1,500,-000. According to the answer of the defendant Albright, he has paid, or obligated himself to pay, upon the faith of said agreement of March 14, 1903, something over $600,000 in liquidating the indebtedness of Barber. There is a wide margin between this sum and the value of the property transferred. While this fact alone is not conclusive evidence of an intent to hinder, delay, or defraud creditors, it is certainly a circumstance to be taken into consideration along with the other facts and circumstances surrounding the transactions of the parties.' It further appears that Barber continued in possession and apparent ownership of the premises in the District of Columbia, and that Albright’s interest therein was only made known when it became apparent that a longer delay in recording his deed would result, as he himself admits in his answer, in the complainant securing a prior lien thereon. It further appears that Barber, while purporting to convey said premises absolutely to Albright, “in conformity to, and in execution of, the provisions of said agreement,” in fact was to continue to enjoy possession and an annuity of $12,000, which annuity was to be beyond the control of his creditors. The deed absolute on its face finally was placed of record. The agreement containing the trust in favor of Barber was not made public until Albright was examined under oath in supplementary proceedings. It matters not what the motives of Albright were, for, conceding that the parties to this transaction “probably never had in view the ultimate loss of the debts of the unsecured creditors by their acts, and may really have supposed that they were taking the best means to insure payment to them all, yet the law has said that the means which they took is to he regarded as a fraud in law by necessary implication.” Means v. Dowd, supra, 281. The facts of this case bring it within the ruling in Lukins v. Aird, 6 Wall. 78, 18 L. ed. 750. In that case Aird conveyed to one Spring, for a consideration of $1,200, lots which had cost [157] him $1,900, Spring agreeing that Aird should have the use of the lots for one year free of rent, with the privilege, so long as Spring did not desire to make use of them himself or to sell them, to rent them at $100 a year, the purchase price being-fixed in consideration of this reservation. Aird thereafter occupied the lots for about two years and a half. Lukins, who was one of Aird’s creditors, filed a bill asking that the conveyance might be declared void. The court, in disposing of the case, said: “The law will not permit a debtor in failing circumstances to sell his land, convey it by deed, without reservations, and yet secretly reserve to himself the right to possess and occupy it for a limited time, for his own benefit. Such a transfer may be upon a valuable consideration, but it lacks the element of good faith; for while it professes to be an absolute conveyance on its face, there is a concealed agreement between the parties to it, inconsistent with its terms, securing a benefit to the grantor, at the expense of those he owes. A trust, thus secretly created, whether so intended or not, is a fraud on creditors, because it places beyond their reach a valuable right, — the right of possession, — and gives to the debtor the beneficial enjoyment of what rightfully belongs to his creditors.” Barber undoubtedly had the right to obtain assistance from Albright, and, in consideration therefor, to transfer to Albright property sufficient fully to reimburse him. Such a transfer would have been no more open to objection than a bona fide sale or mortgage; but Barber certainly had no right to place all his property in the hands of Albright, beyond the reach of his creditors, under an arrangement whereby he was to receive each year out of his own estate the substantial sum of $12,000. This sum was not to be paid him as compensation for his services in caring for the property transferred, but, on the contrary, formed one of the considerations for the agreement. The transfer to Albright was of all Barber’s property and was secret. The deed to Belmont purported to be absolute and was also secret. Barber remained in possession of Belmont, and the annuity reservation in his favor was also secret. From the facts and circumstances surrounding the transactions between Barber and [158] Albright, as disclosed by the record, the conclusion is irresistible that this deed operated “to hinder, delay, or defraud” the complainant, and this conclusion demands the setting aside of the conveyance. In Merillat v. Hensey, 32 App. D. C. 64, we sustained an assignment of a cause of action of an insolvent debtor under a secret arrangement to pay the debtor any surplus after the satisfaction of the claim of the creditors, because it appeared from all the facts and circumstances surrounding the case that the acts of the parties were consistent with an honest purpose, and that other creditors were not in fact prejudiced. In that case the value of the thing assigned proved to be less than the preferred debt, and it was apparent that the agreement as to overplus was a mere incident to, and not in any sense a reason for, the assignment. In this case it is quite apparent that Barber’s affairs had become involved. Realizing that something had to be done to save him from financial ruin, he applied to Albright, his brother-in-law, for assistance. Albright, being apparently a man of good business judgment, decided that no progress could be made unless he could absolutely control the situation. He, therefore, entered into the agreement of March 14, 1903, under which he was to manage and control all of Barber’s business affairs, advance as much money as, in his judgment, he deemed necessary or safe, and pay Barber said annuity. To place all of Barber’s property absolutely beyond his control, and, of course, beyond the control of his creditors, the deed to Belmont was executed. It is inconceivable that a court of equity would sustain such a conveyance as against existing creditors under the circumstances surrounding it. As before stated, whatever may have been the real motive of Mr. Albright in coming to the assistance of his brother-in-law, the inevitable result of taking a conveyance of this piece of real estate with the secret trust attached was to hinder, delay, or defraud the complainant. The decree below is, therefore, affirmed, with costs. Affirmed. • An appeal by the appellants to the Supreme Court of the United States was allowed April 13, 1909,