Hodges v. Hickey

Cooper, J., delivered the opinion of the court. The facts of this case, about which there is practically no controversy, are that in the year 1872, John D. Hodges was the owner of the lands in controversy. Suit was instituted against him by a creditor, and, fearing the result of the judgment in the cause, he executed a mortgage to his brother-in-law, one Bandolph, to secure a large sum of money ($4000), which he falsely recited to be due him. There was some small amount due Kandolph, but he never demanded the execution of the mortgage, and it seems he accepted — 721 — $125 in full payment of the debt against Hodges. In 1875 a decree had been rendered in favor of one Phillips, enforcing a vendor’s lien against Mrs. Hodges upon a house and lot which he had sold to her for about the sum of $1362 of principal, interest and costs of court. Phillips was pressing for payment, and Hodges, acting for his wife, applied to Bush, Patty & Co. to pay off the debt to Phillips, and to take as security a transfer of the decree against Mrs. Hodges. Hodges was at the same time indebted to Bush, Patty & Co., and desired to secure further advances from them. It was thereupon agreed between the parties that Bush, Patty & Co. should pay Phillips, and take an assignment of his decree; that Hodges should procure a transfer to them of the mortgage held by Randolph (not of the debt it secured), which should stand as security for the sum then due, and for such other sums as they should advance to Hodges. In conformity with this contract, Hodges procured Randolph to execute a quit-claim deed to Bush, Patty & Co. of the lands in controversy. On the credit of the security thus supposed to be afforded, Bush, Patty & Co. advanced money from time to time to Hodges, and Hodges made payments from time to time. The rate of interest charged by Bush, Patty & Co. was from 1J to 2J per cent, per month. All payments made to Bush, Patty & Co. were made by Hodges, and nothing seems to have been paid by Mrs. Hodges, either of principal or interest, on account of her debt to them. In December, 1879, a settlement was agreed on by the parties, whereby Mrs. Hodges was to convey to Bush, Patty & Co. her house and lot in full discharge of their debt against herself and Hodges, and Hodges was to cause title to the lands in controversy to be vested in her. Accordingly, Mrs. Hodges conveyed her lot to Bush, Patty & Co., and they, for the purpose of vesting title in her of the lands in controversy, executed a quit-claim conveyance thereof to her. The mortgage to Randolph, the quit-claim from him to Bush, Patty & Co., and their quit-claim to Mrs. Hodges, were each severally recorded soon after execution. After this settlement, and the conveyance executed under it, Mr. and Mrs. Hodges removed upon the lands in controversy, where they have since resided. In — 722 — 1885, Hickey, in faith of the ownership by Mr. Hodges of the lands in controversy, loaned to him the sum of $500, taking no other security therefor than Hodges’ note. This note was not paid at maturity, and in the year 1887 Hickey instituted suit upon it. A few days before the rendition of the judgment in that suit, Hodges consulted an attorney, and was advised that the legal title to the lands in controversy had never passed from him; whereupon he executed a conveyance to Mrs. Hodges, which was recorded before the rendition of the judgment in favor of Hickey. After Hickey had recovered his judgment, Mrs. Hodges executed a mortgage upon a part of the lands to secure a debt of $400 contracted by her with J. W. Patty. It is conceded by Hickey that Patty is a mortgagee for value without notice, and is entitled to priority of payment. The consideration recited in the conveyance from Randolph to Bush, Patty & Co. is $4000, paid by them to him. The consideration recited in the conveyance from Bush, Patty & Co. to Mrs. Hodges is the payment by her of the Phillips decree and costs, by the transfer of her house and lot in satisfaction thereof. The conveyance from Mr. Hodges to his wife recites that he was in the year 1872 indebted to Randolph in the sum of $4000, which indebtedness Randolph transferred to Bush, Patty & Co., and that Mrs. Hodges had by agreement between the parties paid and satisfied this indebtedness to Bush, Patty & Co., upon their agreement and that of Hodges to convey to her said lands; that Bush, Patty & Co. made conveyance thereof, but that Hodges had inadvertently omitted so to do, and executed the deed then made in pursuance of the former contract. The court below held the conveyance from Hodges to his wife fraudulent as against Hickey, and she appeals, and assigns such finding for error. Her contention is that she was a purchaser for value of the lands in controversy at a time when her husband was not indebted ; that there is no evidence tending to show that Hodges then intended to defraud subsequent creditors, or, if there is, that nothing is shown from which knowledge of such intent can be imputed to her; that she relied upon Hodges to cause proper conveyance of the land to be made to her, and supposed that the — 723 — deed from Bush, Patty & Co. vested title in her; that Hodges is estopped to deny the sufficiency of that conveyance to vest title in her, and, because he is estopped, so also should be his creditors who claim through his rights to the land; that a court of equity would have compelled Hodges to make a deed vesting his title in her, and, since he was under this equitable duty, and she had the equitable right to a deed, the conveyance he did make is valid, even though he was impelled to execute it by the suit of Hickey, and even though his purpose was to prevent Hickey from subjecting the land to the satisfaction of his debt. The argument of appellant’s counsel commands our admiration, but, unfortunately for their client, her case does not disclose the essential fact necessary for its support, viz., that she was a purchaser for value. The conveyance executed to her by her husband recites as its consideration the payment by her of the debt secured to Randolph by the mortgage of 1872. The testimony shows beyond doubt that the debt to Randolph was, except a small sum, fictitious; that on settlement between the parties Randolph received from Hodges $125 in full discharge of all demands; and afterwards, at Hodges’ instance, executed a quit-claim deed to Bush Patty & Co. Going a step back, to the deed executed by Bush Patty & Co. to her, we find the consideration stated to be the payment of her debt to them. There is nothing in either deed suggesting that Hodges owed Bush, Patty & Co. anything except the debt of $4000 originally pretended to be owing to Randolph, and transferred to them, but which it is conclusively shown by extraneous evidence was never paid by them, or intended to be transferred to them. Hodges testified that he never contracted to cause said debt to be assigned by Randolph; that he would not have been willing that such transfer should be made, since he would have feared to put himself in the power of Bush, Patty & Co. There is nothing in the record tending to show that the parties, or any one of them, ever contemplated or relied upon a transfer of this simulated debt. The extent of their purpose and understanding was that Randolph should convey the legal title to the land to Bush, Patty & Co. as a mortgage to secure to them the payment of — 724 — the debt then due them by Hodges, or such as he should thereafter owe them. The consideration recited in the conveyance from Hodges having been shown to be false, Mrs. Hodges is permitted to show some other valuable consideration for the conveyance made to her. Leach v. Shelby, 58 Miss. 681. The consideration of one of the deeds is shown to be false, and that of the other (the one from Bush, Patty & Co.) is denied to be true by Mrs. Plodges. Conceding to her, for the purpose of this investigation, the right to attack the consideration expressed in the deed from Hodges, the burden of establishing the existence of the real consideration clearly rested upon her, and this burden she has failed to meet. Viewing the testimony most strongly for her, it only suggests the possibility that, at the date of the settlement with Bush, Patty & Co., Plodges owed them some small sum. The evidence of the persons who should have known the facts (Mr. Hodges, the members of the firm, and their bookkeeper) is exceedingly indefinite and inconclusive. But Hodges produced an account rendered to him in January, 1879, by Bush, Patty & Co. (and no transactions are shown to have been had after that date), and it appears in evidence that the rate of interest charged by that firm was 2J per cent, per month on short loans and 1-|- per cent, on loans running through long time. We have gone through this account and charged Hodges with all the items of debits (except the sum advanced to pay off the Phillips decree), and with interest thereon at 2J per cent, per month, and credited him with all payments made. Thus examining the account, it appears that Hodges had overpaid his part of the account, in January, 1879, by something over $40. The balance claimed by Bush, Patty & Co. as then due them evidently consisted alone of the debt against Mrs. Hodges and interest thereon. Whether interest be calculated on her debt at 2-|-per cent, or at the lower rate of 1§- per cent, per month, she owed, according to the course of business, more than the sum claimed. The account thus examined not only fails to show that Mrs. Hodges paid to Bush, Patty & Co. any sum due by her husband to them, but it is made to appear that his debt had been overpaid, — 725 — and that she owed the entire balance of account. It is needless to observe that payment of her own debt with her own property could not furnish a consideration for the conveyance to her by her husband of his estate. These facts being found, it follows as a consequence that Mrs. Hodges occupied the position of a mere volunteer, to whom her husband had promised to cause his land to be transferred, which he attempted to do by procuring Bush, Patty & Co., who had no title thereto, to execute a conveyance to her. No court would have decreed the specific performance of this promise, and no obligation, legal or equitable, rested upon Plodges to peform it. The conveyance executed by him is therefore to be treated as voluntary, and as such it is prima fade fraudulent as to his then existing creditors. Cock v. Oakley, 50 Miss. 628; Willis v. Gattman, 53 Ib. 721. The decree of the court below, in so far as it declared the conveyance to Mrs. Hodges to be fraudulent, is correct and must be affirmed. The cross-appeal of Hickey is taken to the action of the chancellor in holding that the homestead exemption in the lands sought to be subjected was first to be set off, the remainder sold, and from the proceeds of such sale that Patty was to be first paid, and the remainder, if any, applied to the payment of complainant’s debt; in other words, because the court failed to marshal the securities, and exclude Patty from participation in the proceeds of the lands other than the homestead, until he should first have exhausted the security of the lands constituting the homestead. It is first to be observed that the complainant does not by his bill specifically ask the court for the relief, the refusal to grant which is the ground of his cross-appeal. The bill seeks a sale of the entire tract of land, and, recognizing the priority of Patty’s right, asks that his debt be first paid out of the proceeds of sale, and then that the remaining fund be applied to complainant’s debt. But it is also to be observed that the answer of the defendants does not set up a claim to the homestead exemption. The possession of Mrs. Hodges is averred in the answer, but the purpose of the averment was to show possession by her under an equitable claim at the time when Hodges borrowed the money from Hickey, and not for the purpose — 726 — of founding on it a claim that it was, when the conveyance was made to her, the homestead of Hodges, and therefore not the subject of a fraudulent conveyance. The parties and the court seem to have dealt with the case as made by the evidence, regardless of the issues presented by the pleadings. Ordinarily the cross-appellant could not assign for error the refusal of the court to grant relief he did not ask; but, since in this case relief according to the prayer of the bill would have included, or have rendered unnecessary, the special relief now claimed, and since the defendant has secured a diminution of the general relief prayed, on her testimony alone, and not upon her pleadings, we will examine the question presented, and determine it without regard to the defect of the pleadings. If the decree is erroneous in this respect, the defendant has secured an exemption from some portion of the relief asked by complainant, and to which he is entitled, and, though it may not be the specific error assigned by cross-appellant, it amounts to the same thing. “The rules by which courts of equity adjust the rights of parties in cases like this are variant, and seem to depend on the peculiar circumstances of each case, the principle being that justice shall be done according to the view taken of the relative positions and rights of the parties.” Campbell, J., in Hester v. Thompson, 58 Miss. 108. Relief not expressly prayed may be granted, where rendered necessary by the course of litigation resulting from a claim asserted and secured by the defendant. We have found the conveyance from Hodges to his wife to be fraudulent and void as against Hickey. But it appears in evidence that a part of the land conveyed was at the time the homestead of Hodges, and, because it was, the creditor had no right to subject it to his debt; aud, because he could not subject it, he cannot attack the conveyance thereto as fraudulent. As to this land, Mrs. Hodges is the owner, and her title cannot be assailed by the complainant. It is a mistake to suppose, as has been sometimes suggested, that a court of equity, in proceedings to subject property fraudulently conveyed, cancels the fraudulent conveyance so as to revest title in the fraudulent grantor. This it does not do, but leaves the title where it has been placed by the parties, except in so' far as the — 727 — superior right of the creditor requires that it should be vacated. As to the exempt property the creditor has no right, and, however corrupt may have been the intent of the grantor, the conveyance is-not fraudulent in law, for the law deals only with those frauds by which the rights of others are affected. The conveyance from Hodges to his wife conferred upon her an unimpeachable title to the homestead exemption, but the land other than the homestead she held as trustee ex maleficio for the creditors of her grantor, to the extent that it might be necessary for the payment of claims against him. If the conveyance were to be absolutely cancelled and annulled, we could not assent to the right of the creditor to compel the mortgagee of the whole to subject first the homestead exemption to the payment of the mortgage debt, in order that the non-exempt portion might be exonerated in favor of other creditors. To do this would be to extend a mortgage given by the ■exemptionist upon the exempt property, as security for other debts for which he did not intend to bind it. The rule of marshaling •securities is never enforced by courts of equity where to do so would be unjust to the debtor. Dickson v. Chorn, 6 Iowa, 19. But, since the court does not cancel the conveyance, nor revest title in the grantor, but leaves the title as fixed by the parties, except in so far as the right of the creditor requires it to be impressed with the trust in his favor, we are of opinion that the complainant was entitled to require a sale of that portion of the lands which, when owned by Hodges, constituted his homestead, for the payment of the mortgage debt due to Patty, to the end that the remainder might be applied to his debt. The fact that it was exempt, and therefore not liable to be subjected to his creditors, gave validity to the voluntary transfer of it to his wife; but the influence of this fact terminated with the sale, and neither extended nor limited the power which Mrs. Hodges as owner could thereafter exercise over it. It was her property, absolutely and unconditionally, just as though it had never come to her from her husband. The nature of her right to the exempt and non-exempt portions is not influenced by the fact that both passed by the same conveyance, or that both were conveyed by her husband. As to one, she Avas owner; as to the — 728 — other, she' was trustee for the creditors of her- husband. Holding a- part of the land as such trustee, she has, for purposes of her own, encumbered the whole, and by the decree she has secured has exonerated that part which she owned and had a right to encumber by onerating that with which, as against the complainant, she had no right to deal, and has therefore secured a benefit from her own wrong, at the expense of complainant. If we look at the land as the debtor to Patty, it becomes clear that, as between the two tracts, the exempt and non-exempt, the first is, in the view of a court of equity, the principal debtor, and the other a mere surety. The money raised by the mortgage was borrowed by the owner of the exempt portion, and she committed a fraud upon those having a right to resort to the remainder for the payment of their debts by including it in the mortgage. We recognize the rule that a court of equity will only marshal securities where the creditors are creditors of the same debtor, but it is subject to the exception, that where independent equities exist, from which- there arises a duty on the part of one to pay in exoneration of another, the court will enforce it by subjecting the fund of the principal debtor. Ex parte Kendall, 17 Ves. 520; Dorr v. Shaw, 4 Johns. Ch. 17. The decree is reversed on the cross-appeal of Hickey, and cause remanded.