A suit in equity to set aside a written compromise between a
creditor and a debtor whereby the former, in consideration of the
surrender by the latter of certain real property of much less value
than his debt, and of his representation that he was unable to pay
such debt in full, discharged the debtor absolutely. The ground of
relief was the false and fraudulent representations of the debtor
as to his financial condition, and the admissions of the debtor to
the creditor, made more than twelve years after the compromise.
These admissions constituted the principal evidence of the fraud
charged.
Held that the relief asked could not be granted,
because such admissions were made after the debtor's intellect had
become so far impaired, that his statements ought not to be the
basis of a decree affecting his rights of property, and because it
did not satisfactorily appear from other evidence that he had made
false or fraudulent representations to the creditor.
The case was stated by the court as follows:
Hoffman, Lee & Co., merchants of Baltimore, agreed to aid
James R. Millner in his business of manufacturing tobacco in
Pittsylvania County, Virginia, by advancing to him, when called
upon, between the 10th days of March and May, 1871, the sum of
$15,000, to be repaid with interest at the rate of six percent per
annum, Millner agreeing that all the tobacco that he worked, or
caused to be worked, during the year 1871 should be shipped to
Hoffman, Lee & Co., for sale by them at not less than its
market value. To secure the payment of that sum with interest,
Millner, February 13, 1871, mortgaged to Hoffman, for his firm, a
tract of land in Pittsylvania County containing two hundred acres,
with its buildings, improvements, and appurtenances, including the
tobacco factory situated on it, with the fixtures and appliances
thereto belonging.
By deed of May 3, 1872, Millner continued this mortgage in force
as security for an additional loan of $15,000,
Page 137 U. S. 466
which Hoffman, Lee & Co. agreed to make between that date
and June 1, 1872 -- if he needed that amount, or should call for
it, or any part thereof -- upon the same terms as those expressed
in the first mortgage.
On the 28th day of February, 1873, Millner and Hoffman, Lee
& Co. entered into an agreement in writing, which, after
reciting the above mortgages, proceeded:
"Whereas, upon a settlement of accounts between the parties
respecting the advances secured by said deeds, the said James R.
Millner is found indebted to said Hoffman, Lee & Co. in the sum
of $15,758.67, which sum it is agreed far exceeds the value of all
the property, real and personal, embraced in said mortgage deeds,
and whereas, the said James R. Millner is unable to pay the said
debt in full, and has offered, by way of compromise, to said
Hoffman, Lee & Co. that he and his wife will, by a proper deed,
surrender and release to said Hoffman, Lee & Co., or to said
Robert G. Hoffman, for their benefit, all the right, title, and
interest whatsoever in law and equity, including the wife's
contingent right of dower, of them, the said James R. Millner and
wife, and to all the property of every kind embraced and described
in said deeds of mortgage, except as hereinafter stated, provided
the said Hoffman, Lee & Co. will accept the said surrender and
release, when perfected by a proper deed, in full satisfaction and
discharge of his said debt to them, and will allow him to remain in
the occupation of the land described in said mortgage deeds as the
tenant of said Hoffman, Lee & Co. until the 1st day of January,
1874, without paying any rent for the same, it being understood
that since the date of the last-mentioned deed a portion of the
tobacco fixtures of the tobacco factory described in said deed of
mortgage has been sold by said James R. Millner to Millner Bros.
with written consent of said Hoffman, Lee & Co., and the
portion so sold is not included in the present compromise, which
includes, however, all the residue of the mortgaged property except
that portion of the tobacco fixtures so sold, and whereas, the said
Hoffman, Lee & Co. have accepted the said offer of compromise,
now therefore the parties do agree that the said James R. Millner
and his wife
Page 137 U. S. 467
shall, without unreasonable delay, proceed to execute and
acknowledge a proper deed relinquishing, surrendering, and
releasing to said Robert G. Hoffman, for the benefit of said
Hoffman, Lee & Co., all their right, title, and interest
whatsoever in law or equity in and to all the mortgaged property
aforesaid, except the portion of the fixtures sold as aforesaid,
and upon the delivery of said deed executed and acknowledged as
aforesaid, ready to be recorded, said Hoffman, Lee & Co. shall
and will accept the same in full satisfaction and discharge of the
said debt due to them by said James R. Millner, and will allow him
to occupy the land, including the factory, and all the buildings
upon it, as their tenant, during the remainder of the present year,
without paying any rent."
Millner Bros., a firm composed of John P. Millner and Joseph T.
Millner, (brothers of James R. Millner), under date of March 5,
1873, entered into a written contract with the appellants whereby
the latter, in consideration of the delivery to them, by Millner
Bros., of 16,000 pounds of twist tobacco, branded "Jas. R.
Millner's Extra Goldwin Twist," promised to make title to the
former for the property which by the agreement of 28th of February,
1873, was to be conveyed by James R. Millner and wife to Hoffman,
Lee & Co.
On the 15th day of March, 1873, James R. Millner and wife, in
execution of the agreement of February 28, 1873, made an absolute
conveyance to Hoffman, for his firm, of the property covered by the
mortgage of February 13, 1871, excepting therefrom certain fixtures
previously sold to Millner Bros., with the consent of Hoffman, Lee
& Co. This deed contained the recital that the parties agreed
that the amount due from James R. Millner to the appellants,
$15,758.67, "far exceeds the value of all the said mortgaged
property," but that the latter had consented to accept that
property, free of all claims at law or in equity, of James R.
Millner and wife, or either of them, in full satisfaction and
discharge of their debt.
The contract of March 5, 1873, having been satisfactorily
performed, Hoffman, Lee & Co., by deed of June 10, 1874,
conveyed to Millner Bros. the property embraced by the deed from
James R. Millner and wife. Subsequently, September
Page 137 U. S. 468
3, 1874, Millner Bros. sold and conveyed it to James R. Millner,
the consideration recited in the deed being $6,000 paid or secured
to be paid.
On the 30th of June, 1885, more than twelve years after the
settlement between James R. Millner and Hoffman, Lee & Co., the
latter brought the present suit against James R. Millner, John P.
Millner, and J. D. Blair, administrator of Joseph T. Millner. The
suit proceeds upon these grounds, substantially: that in order to
induce the plaintiffs to make the settlement of February 28, 1873,
James R. Millner represented to them not only that he had
faithfully invested and used in the purchase and manufacture of
leaf tobacco all the moneys advanced by the plaintiffs, and was
totally unable to discharge his debts to them, and would surrender
"all the property he owned," with a clear title thereto instead of
a mere security therein, but that the property held by plaintiffs
as security was worth $6,000 to $8,000, and "was all he had on
earth," and that unless they took it and released him, he would
avail himself of the bankrupt law; that, relying upon such
representations, the plaintiffs "consummated the parol agreement to
accept the mortgaged property from James R. Millner and release
him," and to that end took the deed of March 15, 1873; that the
representations so made were false; that the mortgaged property was
not worth the sum named by him; that the whole transaction,
resulting in the release of James R. Millner, and the sale to
Millner Bros., was pursuant to a plan formed between the three
brothers to defraud the plaintiffs; that in violation of the
arrangement under which the plaintiffs advanced moneys to James R.
Millner, the latter "systematically set apart and appropriated to
himself certain sums from such advances," without the knowledge of
the plaintiffs,
"until at the time of said settlement and release, he had thus
accumulated the large amount of $12,000, which money he had thus,
without warrant, deducted from the advances and failed to invest
and use as agreed;"
that at the time of such settlement and release, the plaintiffs
were not advised that Millner "had so much money," certainly
"they never suspected that he had $12,000 of their
Page 137 U. S. 469
money in his hands in ready cash, which had been advanced only
to be used in the purchase and manufacture of tobacco for
them;"
that these facts were fraudulently concealed by Millner to
enable him to secure his release; that Millner Bros. knew of his
having the $12,000, or at least, knew that he had a large sum
rightfully belonging to the plaintiffs; that they also knew of the
above settlement and release, and aided James R. Millner therein,
taking the conveyance to themselves of the mortgaged property to
further said fraud, knowing that the property was to be paid for
with tobacco manufactured by using plaintiffs' money; that the
money so withheld and concealed was used as common capital between
James R. Millner and Millner Bros., the latter sharing in the
general division of the profits arising therefrom, and that the
tobacco delivered by them for the property was in fact purchased
and prepared for sale with the money of the plaintiffs.
The bill also alleges that the plaintiffs, until very recently
before the commencement of this suit, rested absolutely upon the
finality and good faith of these transactions and settlements, and
would have continued to do so but for the revelation of the above
facts made in June, 1885, by James R. Millner himself.
The relief sought is a decree declaring void the above releases
and conveyances and causing the property to be conveyed to the
plaintiffs; that an accounting be had between them and the
defendants, and that, after all recourse against James R. Millner
is exhausted, Millner Bros. and the administrator of Joseph T.
Millner be required to reimburse hem to the extent of any
deficiency that may be found to exist.
During the progress of the cause, an answer was filed by the
committee of James R. Millner, who was adjudged a lunatic on the
24th of October, 1885, and committed to an insane asylum. He died
pending this appeal, and his administrator was made a party instead
of his committee. His heirs at law have also been made parties.
Answers were filed by John P. Millner and the administrator of
Joseph T. Millner, putting in issue the material allegations of the
bill.
By the final decree, the bill was dismissed, the circuit judge
being of opinion that its allegations were not sustained by the
proof.
Page 137 U. S. 470
MR. JUSTICE HARLAN, after stating the facts in the foregoing
language, delivered the opinion of the Court.
The principal question raised by the pleadings and discussed at
the bar involves actual fraud upon the part of James R. Millner in
procuring the release from Hoffman, Lee & Co. We have seen
that, according to the bill, Millner sought such release upon the
ground of his "total inability" to discharge that claim, and
because the mortgaged property, which he proposed to surrender
absolutely, and free from his wife's contingent right of dower, was
all that he owned and "all he had on earth," whereas it is alleged
he had at the time $12,000 in cash, that had been fraudulently kept
out of the moneys advanced to him from time to time for the
purchase and manufacture of tobacco to be shipped to Hoffman, Lee
& Co. for sale, the proceeds to be applied to the payment of
the moneys so advanced. That Millner had $12,000 in cash during the
summer after the settlement with Hoffman, Lee & Co. is clearly
established by the evidence. But that he represented to them at the
time of, or as an inducement for, the settlement of February 28,
1873, that the mortgaged property was all he had, or that he
threatened to take the benefit of the bankrupt law unless
discharged upon the terms stated in the writing of that date, or
that he retained without investing in his business, $12,000 out of
the moneys advanced to him, only appears from the depositions of
Hoffman and his attorney and a physician, each of whom details
conversations had by them separately with James R. Millner in June,
1885, at Buffalo Lithia
Page 137 U. S. 471
Springs, Virginia, where he was then staying for his health.
Upon a careful scrutiny of all the evidence, oral and written,
bearing upon the condition of James R. Millner at the date of the
above conversations, we are satisfied that he was of unsound mind.
What he said in those conversations cannot properly be made the
basis of a decree against him. His mental faculties had then become
too much impaired to admit of any decree against him based upon his
statements or admissions. Indeed, the evidence fairly requires the
conclusion that he was not at any time during the six months
immediately preceding that time, competent to make any admission
that ought to be the foundation of a decree affecting his rights of
property.
The only representation that he may be held, upon the present
record, to have made in order to induce Hoffman, Lee & Co. to
accept the mortgaged property and discharge him from further
liability is that at the time of the compromise he was (in the
words or the agreement of February 28, 1873) "unable to pay the
said debt ($15,758.67) in full." Was that representation false or
fraudulent? That it was either is not shown with sufficient
clearness to justify the court in disregarding or setting aside a
settlement made more than twelve years before this suit was
instituted. Besides, there is no proof that James R. Millner had,
at the time the compromise was made, the means that he subsequently
invested in the business conducted by Millner Bros., nor does it
satisfactorily appear when or from whom he got the moneys that were
thus invested. If he were in such condition as to be able to
testify or to furnish evidence upon this point, it may be that the
fact of his having, in cash, as much as $12,000 shortly after the
settlement of 1873, if not explained, would justify the conclusion
that he had that amount at the time he asserted his inability to
pay in full the debt of Hoffman, Lee & Co. No such rule ought,
however, to be applied in the present case, for it may well be
supposed that his committee could not, after the lapse of so many
years, furnish the explanation that would properly be required of
Millner if he were alive and of sound mind.
Beyond this, it is not at all clear from the evidence that
Page 137 U. S. 472
Hoffman, Lee & Co. released Millner in the belief that, when
surrendering the mortgaged property, he gave up, or intended to
give up, literally everything that he had, retaining nothing for
the support of himself or family pending his efforts to establish
himself again in business. The representation that he was unable to
pay the debt of the plaintiffs in full was not equivalent to a
representation that the mortgaged property was all he owned.
Liberally construed, the former representation was not inconsistent
with the retention of a part of his means for the support of his
family, or to meet the demands of other creditors.
The fact principally relied upon to show that he and his
brothers combined to defraud the plaintiffs is that the property
surrendered to the latter, and by them sold and conveyed to Millner
Bros., was ultimately repurchased by him. But there was no
concealment of the fact that Millner Bros., before taking a
conveyance from the plaintiffs, had arranged to sell the property
to James R. Millner. Of that fact the plaintiffs were informed both
by Millner Bros. and by James R. Millner as early as April, 1873.
The deed to the latter was put upon record September 3, 1874, so
that Hoffman, Lee & Co. knew, or could easily have known at
least ten years before this suit was brought, that James R. Millner
had become again the owner of the property surrendered to them in
1873. If they understood him as representing, in February, 1873,
that the mortgaged property was "all he had on earth," the question
would naturally have arisen in their minds as to how he was able to
buy that property back so soon after the compromise. But no inquiry
upon that subject was instituted -- at least the evidence does not
show that when the facts were recent, or before James R. Millner's
mind was permanently impaired, any was made by them. The utmost
that can be fairly predicated of such of the evidence as may be
properly considered as the basis of a decree in the cause is that
there is ground to suspect that James R. Millner did not make a
frank and full disclosure as to his financial condition at the time
the compromise was effected with the plaintiffs. But a suspicion of
the want of good faith is not
Page 137 U. S. 473
sufficient to justify a decree setting aside, upon the ground of
fraud, a compromise made as far back as 1873, especially, when the
party to be affected by such a decree has become incapable, from
impairment of intellect, to present his side of the question. Upon
the whole case we are of opinion that the ends of justice will be
best subserved by not disturbing that compromise.
These views render it unnecessary to consider other questions
argued by counsel, and require an affirmance of the decree.
Affirmed.