Clarke v. White - 37 U.S. 178 (1838)

U.S. Supreme Court

Clarke v. White, 37 U.S. 12 Pet. 178 178 (1838)

Clarke v. White

37 U.S. (12 Pet.) 178


The doctrine of a court of chancery in cases for specific performance has reference ordinarily to executory agreements for the conveyance of lands, and is rarely applied to contracts affecting personal property. Where the relief prayed for in a bill is the delivery to the complainant of instruments to which he is entitled, and not the execution of an executory contract, no further than to decree the amount the complainant has been compelled to pay against the terms of the contract, chancery has jurisdiction of the cause and the court will end the cause without sending the parties to law as to part, having granted relief for part.

The rule in chancery is if the answer of the defendant admits a fact, but insists on matter by way of avoidance, the complainant need not prove the fact admitted, but the defendant must prove the matter in avoidance.

It is generally true in cases of composition that the debtor who agrees to pay a less sum in the discharge of a contract must pay punctually, for until performance, the creditor is not bound. The reason is obvious -- the creditor has the sole right of modifying the first contract and of prescribing the conditions of its discharge. If the agreement stipulates for partial payments and the debtor fails to pay, the condition to take part is broken, the second contract forfeited, and is no bar to the original cause of action.

In a composition for a debt by which one party agreed to deliver goods to the amount of seventy percent in satisfaction of a debt exceeding ten thousand dollars, and omitted to deliver within one dollar and forty-one cents of the amount, the mistake is too trivial to deserve notice.

The true rule as to the interference of a court of equity in relation to contracts in which fraud is alleged was laid down in Conard v. Atlantic Insurance Company, 4 Pet. 297.

"If the person against whom the fraud is alleged should be proven to have been guilty of it in any number of instances, still if the particular act sought to be avoided be not shown to be tainted with fraud, it cannot be asserted with the other frauds unless in some way or other it be connected with or form a part of them."

In equity, as in law, fraud and injury must concur to furnish ground for judicial action. A mere fraudulent intent, unaccompanied by any injurious act, is not the subject of judicial cognizance. Fraud ought not to be conceived; it must be proved and expressly found.

By the common law, a deed of land is valid without registration, and where register acts require deeds to be recorded, they are valid until the time prescribed by the statute has expired, and if recorded within the time, are as effectual from the date of execution as if no register act existed.

Where there is clearly a bona fide grantor, the grant is not one of those conveyances within the statutes against fraudulent conveyances.

W. purchased a lot of ground in the City of Washington early in 1829 for one thousand five hundred and thirty-two dollars on a credit of one, two and three years, and paid the notes at maturity. He took possession immediately after the purchase, and commenced improving by erecting buildings on it. On

Page 37 U. S. 179

14 January, 1832, Smith, who had sold the land at the request of W.,

conveyed it to a trustee for the benefit of the infant children of W. The improvements before the deed amounted in value to three thousand dollars, and

after the deed to twelve hundred dollars or fifteen hundred dollars. He failed in December, 1833, and the property was then worth about six thousand dollars. The deed of conveyance by Smith was not recorded until within one day of the expiration of the time prescribed for recording such deed by the statute

of Maryland. The parties who made a composition of a large debt due to them by W., in which composition they sustained a loss of thirty percent, knew at the time of the composition of the conveyance of this property to the infant children of W. and of his large improvements on the same, and made the composition with this knowledge. The court refused to declare the agreement of composition void because of this transaction. He who purchases unsound property with knowledge of its unsoundness at the time, cannot maintain an action

against the seller. So if one compounds a debt or makes any other contract with a full knowledge of all the facts, acting at arms length upon his judgment,

and fails to guard against loss, he must abide by the consequences. Neither fraud nor mistake can be imputed to such an agreement.

If, upon failure or insolvency, one creditor goes into a contract of general composition common to the others, at the same time having an underhand agreement with the debtor to receive a larger percent, such agreement is fraudulent and void.

The rule cutting off underhand agreements in cases of joint and general compositions as a fraud upon the other compounding creditors, and because such agreements are subversive of sound morals and public policy, has no application to a case where each creditor acts not only for himself, but in opposition to every other creditor, all equally relying on their vigilance to gain a priority which, if obtained, each being entitled to have satisfaction, cannot be questioned.

The debtor may prefer one creditor, pay him fully, and exhaust his whole property, leaving nothing for others equally meritorious.

Before a composition was made by a debtor with two of his creditors, who were partners, in which it was agreed that certain notes given by him to the creditors should be delivered up to him, two of the notes, among those agreed by the composition to be delivered up, had been, before they were at maturity, passed away by the creditors. The debtor asked, by a bill filed against his creditors, with whom he had made the composition, that the court should order these notes to be delivered to him. Held that the decree of the circuit court refusing to order these notes should be delivered up was correct.

In the circuit court, the appellee, William G. W. White, filed a bill against the appellants charging that on 2 July, 1832, the complainant passed to the defendants, Clarke and Briscoe, his twenty-six promissory notes of that date, each for the sum of two hundred and seventy-four dollars and sixty-seven cents, payable monthly from sixteen to forty-four months, making the sum of seven thousand one hundred and forty-one dollars and forty-two

Page 37 U. S. 180

cents, three of which said notes were subsequently passed by said defendants to Clagett and Washington. That on 30 December, 1833, he entered into an agreement with the said Clarke and Briscoe to anticipate the period of credit on the said notes and to pay the said sum of seven thousand one hundred and forty-one dollars and forty-two cents in goods and merchandise at seventy cents in the dollar on the price the said goods were marked to have cost; that the said Clarke and Briscoe agreed to receive the said goods and merchandise on the terms aforesaid in full payment of the said sum of money and to deliver up the said notes then in their possession and speedily to take up such of the said notes as had been negotiated and to deliver the whole to the complainant, that they might be cancelled. The complainant states that he fulfilled his part of the agreement in every particular; that he delivered to said Clarke and Briscoe, and they received goods and merchandise according to the terms of the said contract, to the full amount agreed to be delivered, save a fraction of one dollar and forty-one cents, which was subsequently tendered and refused; but that the said Clarke and Briscoe, having obtained possession of the said goods, retain the said notes and refuse to perform their part of the said agreement. The complainant, in a supplemental bill, states that Clagett and Washington, to whom three of the said notes had been passed by the defendants after the date of the said agreement, instituted suits against the complainant on the said three notes in the Circuit Court of the District of Columbia, and that by judgment of the said court the complainant has been obliged to pay and had paid to the said Clagett and Washington the sum of one thousand and eighty-three dollars and fifty-five cents. The complainant prays that Clarke and Briscoe may be by decree ordered to bring into court the said unpaid notes to be cancelled and to pay to the complainant the said sum of one thousand and eighty-three dollars and fifty-five cents so paid to Clagett and Washington, and for general relief.

The answer of the defendants, the appellants, admits that the complainant gave the several promissory notes mentioned in the bill and that three of the same were passed to Clagett and Washington as stated, and they say the consideration for the notes was the sale of a large invoice of goods made about the time of the dates of the notes or shortly before; that the terms and conditions of such sale were that the complainant should punctually take up and pay the notes as the same should respectively fall due, and in

Page 37 U. S. 181

consideration of the complainant's solemn verbal pledge and assurance that such notes should be so punctually taken up and paid and upon the faith and confidence of such pledge and assurance, the defendants agreed to deduct five percent from the amount of said invoice, and accordingly from the aggregate amount, for which the complainant passed his notes, on account of said sale. The defendants deny that they did make the agreement with complainant respecting the compromise of their claim against the complainant and the canceling of the notes in the terms and upon the conditions set forth in the bill, but they admit and aver that about the time mentioned in the bill, in consequence of hearing the complainant had failed in business and was compromising with his creditors, a conversation and arrangement did take place between the defendant, Clarke, and the complainant in which the defendant asked him upon what terms the complainant would settle the whole claim of the defendants, not merely on what terms he would settle the amount of the notes, upon which complainant offered to settle it at sixty cents in the dollar, and pay in goods. Clarke answered that he understood the complainant had compromised with other of his creditors at seventy cents in the dollar, and hoped the complainant would not think of putting off the defendants with less, and the complainant at length agreed to pay the defendants, in goods, the whole amount of their claim at the rate of seventy cents in the dollar, and pay the balance, viz., thirty percent, when he was able, but insisted that they should take the goods in masses, without selection, as they lay upon the shelves, which was finally agreed to by defendant, Clarke; nor was it till after the arrangement had been so agreed on between themselves that anything was said between them about the defendants' getting up and canceling the complainant's notes; but afterwards they admit a conversation on that subject did ensue between defendant, Clarke, and the complainant in which it was understood and arranged between them that upon the settlement of the defendants' whole claim by paying the same in goods at the rate of seventy cents in the dollar, the defendants should get in and cancel said notes, not upon the settlement in that mode of the amount of the notes merely; such was not the understanding of the parties, at least not of either of the defendants, but the true amount of their just claim against the complainant; the amount understood by defendant, Clarke, at the time, was not the aggregate amount of the notes merely, but of the original invoice, in liquidation of the amount of which, with

Page 37 U. S. 182

a deduction of five percent, the notes had been given, and inasmuch as that deduction had been allowed upon the faith and confidence alone of the complainant's pledge and assurance to pay the notes punctually, as aforesaid, and as he had totally failed to comply with said pledge and assurance, the defendants considered that in equity -- indeed in strict justice -- they were entitled to the amount of the invoice without such deduction.

The answer of the defendants further states that the complainant has not, to the time of filing the answer, complied substantially or otherwise with the terms of the compromise in the sense in which it was properly understood and agreed upon, so as to entitle him at any time to call in the notes given for the goods delivered to him; that the notes were to be delivered to him, on the entire settlement of the claims of the respondents on him, he not having delivered goods to the respondents to the amount of the bill, and he having refused to deliver the goods to the respondents, without the said deduction. That the goods delivered to the respondents were the residue or remains of the goods originally sold to the complainant, after he had enjoyed the use and profit of them, as a part of his assortment of goods, for eighteen months, and if the compromise had been carried fully into effect, it would have been a most hard and disadvantageous one to the respondents. The compromise was not binding on the respondents, in consequence of the gross frauds and impositions practiced by the complainant upon the respondents and his other creditors, in order to alarm them into compromises of their debts with him, as with a merchant debtor, who has been subjected by the casualties of trade to failure; that the whole matter of the pretended failure of the complainant was a deliberate, artful, and fraudulent scheme, device, and contrivance of the complainant to alarm and force his creditors into compromises, while he had, in part, ample means to pay off all his debts and have a surplus on hand; that with these ample means, he proclaimed his insolvency and was thus enabled to make advantageous compromises with his creditors, according to the circumstances of his creditors and the state of their fears. That preparatory to this scheme of fraudulent failure, and during the very season, and shortly before it was proclaimed, he had made unusually large purchases on credit, and had so increased his stock of goods much beyond its usual amount, and, just after he had completed this fraudulent accumulation of stock, he gave out his failure in business and insolvency, and set on foot his plan of fraudulent

Page 37 U. S. 183

compromises. It was under the greatest pressure of this alarm, and whilst it was fraudulently used by complainant to practice upon the fears of his creditors, that the defendants were fraudulently and deceitfully drawn by him into such agreement for a compromise, as they have stated and admitted.

The answer further states that it is the belief of the defendants that the complainant had for some time meditated the frauds perpetrated by him and that before he purchased the goods from the defendants, sometime about 9 July, 1832, he caused to be entered in the land records of this county a fraudulent deed, settling valuable property on his family, which had been executed in the month of January preceding and in the meantime kept secret. This deed conveys the property described in it to a trustee for the children of the complainant, all minors and in extreme youth, and was not recorded until within one day of the six months allowed by the law of the District of Columbia had nearly expired.

To the answer of the defendants a general replication was filed, and the parties went on to take depositions to maintain or deny the allegations in the pleadings. No evidence was given to sustain the assertion in the answer that the complainant agreed at any time to pay the residue of the debt to the defendants if he should be able at any time afterwards to pay the same. The evidence contained in these depositions is fully stated in the opinion of the Court.

The circuit court gave a decree in favor of the complainant according to the prayer of the bill, and the respondents presented this appeal.

Page 37 U. S. 187

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