Hull v. Wm. Deering & Co.

McSherry, J., delivered the opinion of the Court. The decree appealed from in this case vacated and set aside as fraudulent a deed of trust executed by Otho Hull to William Eubank, and dated on the twenty-third day of September, 1890. The deed, in which Hull is named the party of the first part, Eubank the party of the second part, and Lou E. Hull, the wife of Otho Hull, the party of the third part, conveys certain real estate lying in Washington County, Maryland, to the party of the second part in trust, “to secure to said Lou E. Hull the payment of the sum of ¡eight thousand dollars, evidenced by a bond of said Otho Hull of even date-with” the deed, “and payable on de — 429 — mand.” The consideration set forth in this deed is, first, natural love and affection; second, the fact that the wife had joined with Otho Hull in conveying to William T. Fitzpatrick a tract of land containing sixty acres, lying in Appomatox County, Virginia, which land was her separate estate, and which Fitzpatrick conveyed immediately afterwards to Hull; and thirdly, the sum of one dollar. The bill of complaint assailing this conveyance was filed February the ninth, 1891. ..Amongst other things it alleges that Hull and his brother, D. Frank Hull, were, in x888 and 1889, engaged in business in Hagerstown as partners, under the firm name of D. F. & Otho Hull; that they became indebted to the appellees in a considerable amount, and that, in addition to-this indebtedness, Otho Hull also individually owed the plaintiffs several hundred dollars. Upon both of these claims foreign attachments were issued against Otho Hull before the bill was filed, and in both proceedings judgments appear to have been subsequently confessed by the defendant. The bill averred that the deed of trust was fraudulent, and that it had been made with intent to hinder, delay and defraud the appellees and other creditors of Otho Hull, many of whom, holding liens on the same property conveyed by the deed, were joined as co-defendants. The answer of Hull and wife denied the material allegations of the bill, and insisted that if there was anything due to the appellees, it was due by the firm of D. F. & Otho Hull, and that there were sufficient assets belonging to that firm with which to pay its indebtedness. There is little or no difficulty about the law of this case. A voluntary conveyance made by a husband directly to his wife or to a trustee for her benefit, in prejudice of the rights of the grantor’s subsisting creditors is, under Art. 45, sec. 1, of the Code, invalid. Such a conveyance is in prejudice of the rights of creditors when it strips the grantor of property which otherwise would have been available for the payment of his debts and leaves him in possesion of no other property which can be discovered or reached. A debtor — 430 — has no right by a conveyance of this character to impede, hinder or delay his creditors in recovering payment of their claims; and it matters not, so far as respects its validity, how much intangible, hidden or concealed property may remain, if by a voluntary conveyance to his wife, or to another for her benefit, he renders it impossible, or even more difficult, for his creditors to enforce payment of the sums that are due to them. So far, then, as the considération of natural love and affection and the nominal consideration of one dollar are concerned, the deed would be invalid as against creditors subsisting at its date whom it hinders and delays ; and if nothing else remained to support it, it would of necessity fall when assailed by any one entitled to question it. There remains the other consideration stated in the deed, viz., the conveyance by the wife of her separate estate situated in the State of Virginia. It is claimed by the appellant, Otho Hull, that this property was very valuable in consequence of large deposits of minerals and clay, and in his testimony he estimated it to be worth as much as ten thousand dollars. But he is supported in this by no other witness. On the contrary, the overwhelming weight of the evidence clearly and conclusively .demonstrates that this Appomattox County land is of trifling value; that it contained no mineral deposits, and that it was worth only from two and a-half to three dollars per acre. Estimating it at even the highest of the figures named, its utmost value would not exceed one hundred and eighty dollars. A consideration amounting to no more than that sum would be wholly inadequate to support the deed of trust against the grantor’s attacking creditors. The value of- Hull’s interest in the property conveyed by the deed of trust has been ascertained by a sale of that property and the payment of the liens upon it. The amount remaining, which has been treated as standing in the place of the property, is largely in excess of the sum of one hundred and eighty dollars. Upon the hypothesis that Ótho Hull was indebted when — 431 — he executed the deed of trust in an amount larger than the value of his available and tangible assets, the deed, supported by the insufficient considerations alluded to, cannot prevail against the grantor’s creditors except to the extent to be presently stated. And this brings us to an examination of Hull’s financial condition at the date of the execution of the deed. Whilst he has testified that he then possessed both real and personal property, situated in the State of Virginia, and had on deposit to his credit in a Lynchburg bánk some fifteen hundred dollars, the certificates furnished by the Clerk of Bedford County, Virginia, and found in the record, show that by far the most valuable part of the real estate, the title to which appeared by the deed he exhibited to stand in his own name, he had conveyed to his wife long prior to his examination as a witness. He suppressed all reference to this latter conveyance, of the existence of which he was, of course, fully aware. The value of the residue of his real estate was insignificant, and his personal property, also situated in Virginia, even at its assessed valuation, was not sufficient to pay his indebtedness. The money to his credit in bank during the month of August, 1890, does not appear and was not shown to have been there when the deed of trust was made in September; nor has he given any account as to the disposition he made of it, if he has ever parted with it at all. The deed of trust substantially and practically stripped him of all the real property which he owned in Maryland, and his personal property, situated in Washington County, was seized and sold under executions issued on judgments recovered against him. In the face of all the facts to which we have alluded, it is idle to say he was not insolvent when he executed the deed of trust, or to insist that the conveyance, whose good faith is now impeached in these proceedings, did not hinder or was not made with an intent to hinder, delay and defraud his creditors. It attempted and was obviously designed to put beyond the reach of his creditors the great bulk, if not — 432 — the whole, of his Maryland real estate which was available at the date of its execution for the payment of his debts ; and it attempted to do this by a conveyance, part of whose expressed consideration made that conveyance, as to that part, purely voluntary; and the residue of whose consideration has been conclusively shown to be grossly inadequate. It was therefore clearly the duty of the Circuit Court to-declare the deed invalid, except in so far as it might be allowed to stand as a security to the wife to- the extent of the value of her separate estate conveyed through Fitzpatrick to the husband, as heretofore stated. That the- deed should be allowed to stand as security- for the value of’ the wife’s separate estate acquired by the husband’ as a part of the consideration for the deed of trust is fully warranted: by the authorities. Hinkle v. Wilson, 53 Md. 293; Williams v. The Sav. Man. Co., 3 Md. Ch. Dec. 454. What we have said thus far is based on the assumption* that the appellees were entitled to file and' prosecute the-pending proceedings. But it has been insisted in the- argument that the decree was erroneous because the debt due by Otho Hull to the appellees was not due by him personally, but by the firm of which he was a member; and that until, the social assets have been first exhausted, no. part of his., individual property can be taken to pay the debts due by the copartnership. It is undoubtedly true, in a contest between creditors of a partnership, and creditors of the members of that partnership, that the former must primarily look for payment to the partnership assets and the latter to the individual’ assets of the members of the firm. Logically, no reason can be assigned why the same doctrine- should not equally apply in favor of the debtor when his individual property has been seized by a creditor of a firm of which he is a member, and it is neither averred nor shown that there are no social assets. If the partnership be possessed of sufficient means to fully pay and satisfy all its debts, then no voluntary deed made by a member of that firm conveying his individual property can be fraudulent as to the firm creditor, or can — 433 — hinder or delay him, because in the case supposed, the creditor would have no claim whatever upon the individual property for payment. If he has been neither injured, delayed, nor hindered by such conveyance, because of there being sufficient social assets to pay his claim, he manifestly has no standing in a Court of Equity to question or assail it. But beyond this he has no right to resort to-the individual property until the firm’s assets have been exhausted and the individual debts have been paid. Hence, until he shows that he has the right to resort to the individual property for the payment of the debt due by the firm, no disposition of that individual property can, in the nature of the thing, be prejudicial or injurious to him. Unless he shows that he has a right to avail of it for the payment of his debt, he cannot be heard to question the. use its owner may see fit to make of it. It results thence,, that to enable him to secure payment out of the individual! property, he must aver and show that he is in a position to» enforce that payment, or, in other words, that there are no' firm assets or an insufficiency of firm assets, and that there • are no individual creditors, or that the individual property is .more than sufficient to pay them in full. Until he does this he is obviously in no position to impeach a conveyance of individual property, and he is in no position to impeach it because he has no claim upon or right to look to that property for payment. McCoy v. Watson, 51 Ala. 466; 2 Lind. Part., star, page 706. But the case at bar cannot be controlled by these princiciples, because the appellees are not only creditors of the firm of D. Frank and Otho Hull, but of Otho Hull individually, against whom they hold a judgment for the amount of the latter claim. In their capacity, as separate creditors of Otho Hull, they have the undoubted right to assail the conveyance in question. The distribution of the fund is quite another question, but that is not now before us. We have not deemed it necessary to' discuss the question — 434 — of Otho Hull’s separate indebtedness to the appellees. The proof in the record, including his confession of judgment upon the claim which the appellees asserted against him individually, is -quite sufficient to set that controversy at rest. (Decided February 27th, 1895.) As we have found no error in the decree appealed from, it will be affirmed with costs. Decree affirmed with costs above and below.