O'Conner v. Ward

Cooper, J., delivered the opinion of the court. The demurrer was properly overruled. It is a general demurrer to the whole bill and though many causes are assigned, • — 1033 — each one denies the right- to relief on all the facts stated in the bill. The complainants ask to be relieved on either one of the several grounds that the conveyances were intended as mortgages, though absolute in form, or, that they were made for the purpose of defrauding the creditors of Mrs. Ward at the instigation and procurement of the defendant, who by reason of his relationship to the complainants had acquired and exercised such an influence over them that the fraud ought to be imputed to him to so much greater degree than to them, as to induce the court to cancel the conveyances under the rule that where the parties are in delicto, but not in pari de-licto, relief will be granted to the least guilty; or, that in view of the relationship existing between the parties, public policy requires that relief should be granted even though the parties are in pari delicto; or, that the defendant has in writing declared a trust in favor of the complainant Mary E., which a court of equity should enforce. It would seem that the agreement that the conveyances should be treated as mortgages is so intimately connected with the intent to defraud creditors that no relief could be granted upon this as an independent ground, unless the circumstances are such as to justify the court in proceeding notwithstanding the fraudulent character of the conveyances. Ybarra v. Lorenzana, 53 Cal. 197. Whether the declaration of trust is sufficient under our Statute of Frauds, and whether if it is it would be enforced under the circumstauces of this case, it is not necessary now to determine ; no court of equity would enforce it if the effect would be to interpose any additional obstacle to the collection of their claims by the creditors of Mrs. Ward. But admitting the conveyances to have been made for the purpose of defeating the creditors of Mrs. Ward, we are of opinion that under the circumstances of their execution they should be annulled. As to the creditors of Dr. Ward, O’Conner was executor de son tort by reason of his intermedling with the estate, and — 1034 — as to the widow and child of the intestate he occupied a very analogous relation to that which would have been held by an administrator legally appointed. His was a position inviting trust and confidence, and though by his answer he denies that this was reposed to the full extent charged in the bill, he does not deny the relation which he held to the complainants, nor that they intrusted to him the entire management of their affairs. It is but just that his duties, liabilities, and incapac-ities should be tested by those which would have devolved on one legally appointed to the performance of the duties which he undertook. Under the facts charged in the bill and admitted by the demurrer the parties are not in pari delicto. These facts are, that soon after the death of the intestate O’Conner came to the widow and child and stated that he had been requested by Dr. Ward to superintend their business ; to be their friend and adviser; that he at once assumed the relation of agent, confidential friend and adviser to the complainants ; that they were unaccustomed to business, and committed to him the entire control and management of their affairs ; that he procured the removal of Spratt, who had been duly appointed as administrator, in order that his custody and management of the estate might not be interfered with ; that he, as their agent and representative, borrowed from Perrine the sum of $25,-000, which was secured under his directions by the execution of a mortgage by complainants on their lands ; that he received all the rents and profits of the estate for the professed purpose of applying them to the payment of the debts due by it; that at the time when the conveyance of June, 1877, was made he had thus received enough money to pay all such debts ; that he represented to complainants that he was then a creditor of the estate and of theirs, and that the creditors of Mrs. Ward could subject the property to their demands : that the conveyances were made at his solicitations and instigation for the double purpose of securing any debt due to himself and of defrauding the creditors of Mrs. Ward. — 1035 — These admitted facts indicate that the scheme was really concocted by the defendant, and though participated in by the complainants, that their conduct was the result of his suggestion and advice, without which the conveyances would not. have been made. The answer of the defendant denying the fraud is rather a denial of the motives imputed to him as against the complainants than a denial of the facts charged from which the fraud is to be inferred.' Taking the facts to be as stated, the complainants are to be considered rather as the victims of the schemes and influences of the defendant, than as conspirators in an unlawful enterprise equally guilty with him. We do not agree with the proposition announced by Mr. Bump in his work on Fraudulent Conveyances, that- where a person has sufficient capacity to contract, and makes a conveyance with intent to hinder, delay, or defraud his creditors, a court of equity will not inquire into the degrees of guilt between the grantor and the grantee. The rule is not universal, and, as stated, is not supported by the authorities. In Osborne v. Williams, 18 Ves. 382, a father and son had entered into an agreement which was in contravention of a positive statute; the contract had been executed by the son and the father had derived a profit from its execution ; both parties having died, a suit was instituted by the representatives of the son against those of the father for an account, and relief was granted upon the ground that while the parties were in delicto they were not in pari delicto. In Pinkston v. Brown, a mother being threatened with suit by her creditors desired to convey her property to her children to defeat such claims, and sent for one Craig to advise with her upon the subject. Craig advised that she should execute a mortgage to secure other debts due to creditors who-were not pressing their collection; but as the value of her property exceeded the amount of such claims, she made anote to her son for a feigned debt and the mortgage was executed to secure this sum, together with the other valid debts; hav — 1036 — ing paid all tbe real debts secured, she exhibited her bill to vacate the mortgage. It appeared from the evidence that the son had great influence over her ; that he informed her that Clarke was about to press the collection of his claim, and the. court being of opinion that he gave such information for the purpose of forcing her to the execution of the mortgage, held that the relief should be granted, saying “ the mother and son were in delicto but not in pari delicto.” Smith v. Bromly, Doug. 696 ; Browning v. Morris, Cowp. 790 ; Story’s Eq. Jur., sect. 300 ; Boyd v. De La Montaigne, 73 N. Y. 498 ; Pinkston v. Brown, 3 Jones Eq. 494. In none •of these cases was it intimated as a reason for granting relief that the parties had not sufficient capacity to contract. We are not forgetful of the fact that in the litigation between the creditors of Mrs. Ward and O’Connor the complainants gave emphatic testimony to the bona fides of the conveyances ; but the demurrer admits they were, in fact, fraudulent as now charged in complainant’s bill, and if they were, O’Connor, as complainant, made oath to the same facts as did the complainants as witnesses, and is equally with them guilty of perjury. As to the interest of Miss Ward in the estate and the homestead of the mother, the conveyances could not .have been fraudulent as to creditors, for in no event was this property subject to their demands. It is true that complainants acted under the impression that it was, but this did not make it so liable. The statute declares only those conveyances to be void whereby property subject to be taken by creditors is conveyed. It is not the unlawful intent alone, but the unlawful intent coupled with the unlawful act which it condemns. To bring a case within the terms of the statute there must be a creditor to be defrauded, a debtor intending to defraud, and a conveyance of property which is appropriable by law to the payment of the debt due. As to so much of the property, therefore, as the creditors could in no event have reached, there was no fraudulent conveyance, because there was no — 1037 — wrongful conveyance. There was a bad motive, but no illegal act, and it is only to such that the law applies. If, therefore, a conveyance is made to defeat a debt where none exists, or of property which could not be subjected by the creditor, and there is a contract, otherwise valid, that the conveyance shall be treated as a mortgage, that the grantee shall reconvey, he cannot defeat a suit brought to enforce such agreement on the ground alone that the plaintiff intended to make a fraudulent conveyance. Denman v. Denman, 4 Ala. 521; Brady v. Ellison, 2 Hayw. 348 ; Smith v. Bruser, 2 Hayw. 296 ; Boyd De La Montaigne, 73 N. Y. 498. But upon still another ground the demurrer should have been overruled. The rule appealed to by the defendant, that when parties are in pari delicto the court will lend its aid to neither, is subject to the exception that where public interest requires its intervention relief will be-granted, though the result may be that the property will be restored to or a benefit derived by a plaintiff who is in equal guilt with the defendant. In such cases the guilt of the respective parties is not considered by the court, which looks only to the higher right of the public, the guilty party to whom relief is granted being only the instrument by which the public is served. St. John v. St. John, 11 Ves. 535 ; Hatch v. Hatch, 9 Ves.; Morris v. MacCullock, 2 Eden, 190 ; Roberts v. Roberts, 3 P. Wms. 65 ; Smith v. Bromly, Doug. 695 ; Browning v. Morris, Cowp. 790 ; Osborne v. Williams, 18 Ves. 379; W. v. B., 32 Beav. 574; Ford v. Harrington, 16 N. Y. 285. Courts are and should be cautious in affording relief to. a fraudulent debtor or other violator of the law under this exception, and should act only where itis evident that some greater public good can be subserved by action than bj^ inaction; some security afforded to a class of persons entitled to peculiar protection, or some safeguard thrown around a relationship which is an object of the law’s jealous consideration. But it may be safely asserted that it will be of far greater protection to the public, that one occupying the relation of guardian, — 1038 — trustee, executor, or administrator, shall in all cases be compelled to return any property or profit secured by his frauds from those whose interests he is bound to protect, than to permit him, under any circumstances, to shelter himself behind the plea that those defrauded by him were themselves guilty of an equal wrong. The decree is affirmed.