Nicholson v. Schmucker

Briscoe, J., delivered the opinion of the Court. This is a proceeding, in equity by Samuel D.' Schmucker, trustee in insolvency of Johns H. R. Nicholson, to avoid and set aside a conveyance of certain real estate made by deed to the appellant, Bishop Nicholson, as trustee for his sisters, Mrs.'White and Mrs. Shriver. Bishop Nicholson owned at the time of the purchase one-seventh of the property in his own right and held five-sevenths as trustee for his sisters, which, with the one-seventh here conveyed by his brother Johns, gave him the entire property. The- bill charges, first, that the deed was made with intent to delay, hinder and defraud creditors, contrary to the insolvent law. Secondly, that it was given in payment of an antecedent debt and gives a preference against the terms of the insolvent law. It appears from the _ record that the sale was made, and the consideration therefor, seven thousand dollars in bonds, was paid in September, 1891, while the deed was not executed until the 31st of October, 1891. Nicholson was adjudicated an insolvent on the 24th of February, 1892, within four months after the execution of the deed. Bishop Nicholson in his testimony explains the circumstances of the sale and of the making of the deed, substantially as follows : “ I was about to move west permanently ; there were two remaining pieces of property, undivided, belonging to my father’s estate; I had a desire, as soon as possible, to sell them both off and close out the estate. The two pieces of property were the two spoken of in that deed; I came on [463] to see my brother John about the second week in September ; I saw him at his office; was in town about two hours that day between the trains; stood outside his counter and talked with him over his counter. I told him I had had inquiries about the purchase of the banking house property; the Hopkins Savings Bank people were after me about it, asking its price; also a Mr. Reed, P. J. Reed, I think his name is, and I suggested to him that I would be willing to buy out his share in that undivided estate, and buy it in the interest of my two sisters, Mary and Martha, for whom I was trustee, and I told him I would give him $7,000 for the properties as they were, and he agreed to that-; I told him that he might take $7,000 of the bonds, and I specified the bonds which were then in his possession for safe keeping belonging to my two sisters; the matter was concluded that day before I went back; I told him to take the bonds, and that very soon I would have the deed made; I told him that about the' first of January I would be on again and then we could settle the' matter of premium, but in the meantime, the sale being bona fide, he might take bonds and I would take the property. I asked him about the deeds, who should make them; he advised me to copy the deed literally, changing only the names and dates, the deed which I held from my brother, Charles G. Nicholson, covering precisely the same property. I then copied the deed literally, changing only the names and dates. The sum was precisely the same as in the original case of my brother, $7,000, so this was $7,000; my brother Johns said he would be glad if the girl's could make a little turn out of the matter; the deeds were drawn afterwards; the exact dates I can’t recall; I felt in no great hurry about the matter.” The proof further shows that the appellant had no knowledge at the time, of the financial condition of the vendor, but believed him to be absolutely solvent; that the sale was entirely bona fides and not made for the purpose of indemnity for any loss or apprehended loss on the part of the vendee. It does not appear from the evidence that [464] there was any fraudulent intent on the part of either the vendor or vendee. On the contrary, the bona fides of the transaction is fully established by the proof. By the Act of 1890, chap. 364, amendatory of Code, Art. 47, such sales are specially excepted from the provisions of our insolvent laws. This Act provides that nothing herein shall apply so as to set aside or render invalid the lien of any such judgment, mortgage or other conveyance executed by the debtor for money bona fide loaned or paid at the time of the creation of such judgment, mortgage or conveyance, but such shall remain a valid and subsisting lien, although the debtor may be proceeded against, or may apply for the benefit of the insolvent law under this Act. In the case of Hinkleman et al. v. Fey, 79 Md. 112, this Court said that this Act was passed for the purpose of removing all doubt about bona fide loans made at the time. It is an important provision, as a merchant, banker or other person mentioned, might otherwise be unable to borrow money to enable him to meet pressing demands and thereby avert financial disaster. It is, however, insisted that the conveyance of the real estate contains a preference, because the bonds for $7,000 given for the purchase of the property, were delivered prior to the execution of the deed, and that at the time of the sale one of the bonds which had been in possession of the vendor, had been sold by him. But to this we cannot agree. The preference at which the law is directed can only arise in case of an antecedent debt. Here there was no such debt. It appears that the bonds were transferred at the time of the sale without any knowledge that the vendor was insolvent, or contemplated insolvency. Bishop Nicholson testified that he never knew of the hypothecation of the bond, nor did he authorize it, but that he was informed that they were all in the “ mutual box ” at the time of the sale. In the case of Williams v. Clark, 47 Minn. 53, it was held that-a conveyance of real estate by an insolvent debtor, which, standing alone, would be void as a prefer [465] ence under the insolvent law, is not thus avoided if it be made pursuant to a prior valid and enforceable contract legally obligating the debtor to make the conveyance. And in Bush v. Boutelle, 156 Mass. 167, a case somewhat similar to the one now under consideration, Judge Morton, in delivering the opinion of that Court, says : “ The money was lent and the security taken, for aught that appears, in good faith. It is not enough to avoid the conveyance, that the party was insolvent when it was made, and knew himself to be so, if the conveyance was not made to secure an antecedent debt, or with any intention on the part of the defendant to defeat the provisions of the insolvent law, or with reason to believe that such was the purpose of the insolvent, but was given as security for a debt then incurred.” Of course it would be otherwise if the agreement to give security was executory, and at the time the security was given there was clearly an antecedent debt. Bentley v. Wells, 61 Ill. 60. (Decided June 18th, 1895.) In answer to the objection made by the appelle that the agreement was void by the Statute of Frauds, we need only say that the Statute of Frauds has no application to a contract which has been fully performed on both sides, like the one in this case. Browne on the Statute of Frauds, sec. 116 ; Ellicott v. Peterson’s Exs., 4 Md. 491; Post v. Corbin, 5 N. B. R. R. 11; Sparhawk v. Richards, 12 N. B. R. R. 79 ; Cook v. Tullis, 18 Wall. 332; 9 N. B. R. R. 433. Being then clearly of the opinion that the deed in question is entirely valid, and that the conveyance ought to be sustained, the decree will be reversed and the bill dismissed with costs to the appellants in both Courts. Decree reversed and bill dismissed with costs in both Courts.