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
MR. JUSTICE CATRON delivered the opinion of the Court:
The appellants contend the decree should be reversed and the
bill dismissed upon various propositions of law and fact.
1st. It is insisted:
"The complainant has laid no ground in his bill for equitable
relief. Neither the agreement itself as alleged in the bill nor any
of the collateral circumstances being of a nature to call for a
specific performance in equity."
The doctrine of specific performance has reference ordinarily to
executory agreements for the conveyance of lands, and is rarely
applied to contracts affecting personal property. 2 Story's Eq. 26,
36. Nor is relief sought by the complainant on this head of
jurisdiction. To encumber the case made by the pleadings with
doctrines foreign to the subject matter litigated would tend to
confound principles in their nature dissimilar and separate. The
relief prayed is the delivery to the complainant of instruments to
which he is entitled. 2 Story's Eq. 12. Not the execution of an
executory contract
Page 37 U. S. 188
further than to decree the amount he has been compelled to pay
to Clagett and Washington, which is an incident to the exercise of
jurisdiction that coerces the delivery of the instruments.
So material a part of the transaction being clearly within the
jurisdiction of the court, it will of course end the cause without
sending the parties to law as to part, having granted relief for
part.
2d. It is assumed:
"But whatever the terms or the nature of the composition and
however fit it may be in its own nature for specific performance in
equity, the whole of the complainant's equity is repelled by a
countervailing equity in defendants, from his promise as one of
their concomitant inducements to the composition to pay the full
amount of the debt, when able to do so, and from the fact, both
averred and proved, that he was able to pay the whole debt. Did the
complainant, White, promise to pay the full amount of the debt when
he was able to do so, and by this means induce the respondents to
make a composition then to receive seventy cents in the dollar as
partial payment? If this was the contract and the complainant was
able to pay the full amount at the time, he was immediately bound
for the thirty cents in the dollar in addition, and the respondents
are entitled either to have the bill dismissed so that they may
enforce the contract at law for the balance due or they must have
administered to them in equity the same relief by a decree for the
thirty percent founded on the familiar rule that he who seeks
equity, must, as a condition, do equity to the respondents before
the relief can be granted. We must therefore inquire what the
contract was. The bill in substance alleges that the aggregate
amount secured by the notes prayed to be surrendered was seven
thousand one hundred and forty-one dollars and forty-two cents;
that the notes were not due when the composition was made; that the
parties entered into an agreement to anticipate the period of
credit on them, by which White undertook to deliver to Clarke and
Briscoe, and they agreed to receive of White goods and merchandise
in full payment of the sum due at the rate of seventy cents in the
dollar, estimating the goods then in White's store at the prices
marked on them as cost prices; that the goods were delivered in
discharge of the debt, and the notes, as evidences of it, were to
be surrendered to White on the delivery of the goods."
To this specific allegation it is answered:
"These defendants deny that they did make the agreement with
complainant respecting the compromise of their claim against the
complainant and the
Page 37 U. S. 189
canceling of said notes in the terms and upon the conditions set
forth in said bill, but they admit and aver that about the time
mentioned in said 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 said 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
said notes, upon which complainant offered to settle it at sixty
cents in the dollar and pay in goods. Said defendant, Clarke,
answered that he understood complainant had compromised with other
of his creditors at seventy cents in the dollar, and hoped
complainant would not think of putting off the defendants with
less, and complainant at length agreed to pay 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 of either
of these 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 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 said pledge and
assurance to pay the said notes punctually, as aforesaid, and as he
had totally failed to comply with said pledge and assurance, these
defendants considered that in equity -- indeed in strict justice --
they were entitled to the amount of the invoice, without such
deduction."
Whether the thirty percent in addition is due to the
appellants
Page 37 U. S. 190
by the contract depends on the evidence. The answer admits the
agreement of composition to be truly set out in the bill, so far as
it is set forth, but insists that so much of it as stipulated for
the full payment of the notes when the complainant was able is
omitted. The rule in such case 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."
Dyer 108. The defendants adduced no evidence tending in the
slightest degree to establish the statement in the answer. The
complainant, however, proceeded to prove the contract by different
witnesses, to be such (and no other) as the bill alleges it to have
been. We give extracts from the depositions of two of his
witnesses.
"Do you or do you not remember a compromise made between the
complainant and the defendants, Clarke and Briscoe, relative to the
payment of a certain debt due from the said complainant to the said
defendants? If yea, state the subject of the said compromise and
the terms of it."
"To the second. I do. The claim was for the original purchase
made of Clarke and Briscoe by complainant in 1832, and the
agreement was to pay the notes given for that purchase by giving
them goods at seventy cents in the dollar at the prices which they
were marked as having cost. Mr. Clarke made the agreement. He was
to commence at any part of the store he chose and take the goods as
they came till his claim was satisfied. Some of the notes had been
passed away by Clarke and Briscoe. These they were to take up and
return with the other notes to Mr. White as soon after the goods
were delivered as he could get them. There were no engagements, so
far as I know, to pay the balance of thirty percent at any time. I
was present when the bargain was made. They took the goods upon
those terms to the full amount of their claim except one dollar and
forty-one cents."
"To the second. I recollect Mr. Clarke's coming into Mr. White's
store and wishing to know in what way they would settle. The result
of their conversation was that Mr. White should give him seventy
cents in the dollar in goods for the amount of his claim. The claim
was for the balance due to Clarke and Briscoe for the purchase of a
stock of goods made of them by Mr. White, in 1832. The terms of the
compromise were that Mr. Clarke should commence at any part of the
store where he chose and go on taking
Page 37 U. S. 191
all the goods as they came till he got the full amount of his
claim at seventy cents in the dollar at the price which the goods
were marked to have cost. Mr. Clarke was to deliver up to Mr. White
the notes which remained unpaid for the purchase in 1832."
The assumption, therefore, that the complainant's equity is
repelled by the countervailing equity of the defendants because of
the promise to pay the full amount of the debt when complainant was
able cannot be sustained.
It is, third and fourth, assumed, that
"A composition of a failing trader with his creditor, being
strictissimi juris, must be fulfilled by the debtor to the
letter, and any failure in complying with its terms in a minute
particular on his part, however far he may go in part performance,
vitiates and annuls the whole composition."
"According to the complainant's own showing, he has failed to
fulfill the composition
in terminis, and he has to this
day something further to do in order to fulfill it, yet he has not
even been decreed to fulfill it."
It is generally true in cases of composition that the debtor who
agrees to pay a less sum in 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 for composition stipulates for partial
payment and the debtor fails to pay, the condition to take part is
broken, the second contract forfeited, and no bar to the original
cause of action. 16 Ves. 374.
It will be necessary to examine whether any question is raised
to which the principle can be applied. We have seen there is no
evidence sustaining the claim for thirty percent on the seven
thousand one hundred and forty-one dollars forty-two cents,
adjusted by the composition, but it is also insisted by the answer
that if White failed to pay punctually for the goods purchased from
C. and B. in 1832, he then contracted to pay five percent in
addition on the invoice in liquidation of which the notes were
given.
The averment is, independent of any allegation in the bill, very
improbable in itself, and not sustained by the slightest proof. We
take it, therefore, no such agreement was made.
At the time the goods were delivered, through inadvertence, one
dollar forty-one cents remained due to Clarke and Briscoe. When
White discovered it, he offered to pay the amount, which the
respondents
Page 37 U. S. 192
refused to receive. The fact is set forth in the bill but not
noticed in the answer. If, however, an issued had been taken upon
it, we think the mistake of a character too trivial to deserve
notice; the defendants disregarded it when the goods were in a
course of delivery, and admitted the contract of composition, to
the amount of seventy cents in the dollar, to be discharged, and so
this Court holds.
White's compliance will therefore bear the test of all the legal
strictness supposed in argument to apply in cases of performing
contracts of composition.
Fifth and sixth, it is insisted:
"There is no evidence in the cause competent and sufficient to
overrule so much of the answer as denies the agreement for
composition, alleged in the bill; and avers a materially different
agreement."
"Taking the terms of the composition to be such as the answer
avers and puts in the place of what it denies, there appears a
still more important, palpable, and fatal breach of its terms on
the part of complainant."
We reply that the evidence is competent and amply sufficient to
overrule the parts of the answer responsive to the bill, and that
the terms of the composition were such as the answer avers.
Seventh, it is insisted:
"The actual frauds which the answer charges in the elaboration
of the scheme of artificial and feigned failure and insolvency for
defrauding the creditors of their dues and overreaching them with
unfair compositions under deceitful pretexts are fully made out in
proof, and are sufficient, and more than sufficient, to set aside
the complainant's composition with the defendants and every
composition with his other creditors."
This being the ground upon which most reliance was placed to
make out the defense, it is due to the argument that we examine the
point in the form it has been presented for the appellants, and
consequently that some attention be bestowed on the evidence
tending to prove fraudulent conduct in the appellee without nicely
discriminating how far it applies to the cause made by the
pleadings. It is contended that the correspondence, the attempts at
composition with the Baltimore merchants, and the agreements with
them and others furnish evidence of a fraudulent intent in the
appellee to alarm and overreach his creditors generally, thereby to
draw them into compositions
Page 37 U. S. 193
at low rates by deceitful pretexts, which position, it is
assumed, is fully made out in proof, and that the appellants were
victims to the common fraud and subterfuge is a fair inference; at
all events, if actual fraud does not appear, that it is evident the
complainant did not come into court with an unaffected conscience;
in which case he cannot call upon the active power of the court for
relief; that in the phrase of early times, the complainant must
come into equity with clean hands.
If any deception was practiced whereby the appellants were drawn
into a losing bargain and a sacrifice of thirty percent of their
just demand, the court could not, consistently with the principle
referred to, afford its active aid to the complainant. But if it be
assumed that a court of equity can refuse relief because the
complainant, in settling with other creditors, imposed on them, and
hence his conscience is affected, the assumption must be rejected
as unsound. Such extraneous dealings are not within the issue, and
do not belong to the cause further than they can be connected with
the transaction as evidence of a connected system of fraud to
produce alarm and action on the part of these particular
creditors.
To press further the principle that a complainant must come into
a court of equity, when he asks its aid, with a clear conscience
would be assuming an unlimited and undefined discretion to dismiss
the bill not for want of equity in the allegations and
corresponding proof, but because of the bad conduct in life and
character of the complainant.
The true rule is:
"If the person against whom fraud is alleged should be proved 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 affected with the other frauds unless in some
way or other it be connected with or form a part of them."
Conard v.
Nicoll, 4 Pet. 297.
Testing the force and effect of the evidence, with this
explanation of the rule, in virtue of which it is sought to give it
effect, and what does it establish? For years before the fall of
1833, when the transactions we are investigating took place, the
complainant, White, had been a retail dry goods merchant in
Washington City of reputed opulence and decidedly good credit. In
1833, the city business was depressed and the sales reduced
compared with former years; the retailers generally bought light
stocks for the fall trade, predicting pressure in the money market
and difficult times. White, on the contrary, purchased much larger
than usual, asserting it as his opinion
Page 37 U. S. 194
that trade would assume its usual vigor, and that the ordinary
quantity of goods would be needed during the then approaching long
session of Congress. His fall purchases amounted to near
thirty-four thousand dollars, and added to those of the spring made
forty-seven thousand eight hundred and fifty-seven dollars. In the
previous year (1832), he had purchased thirty-three thousand eight
hundred and ninety-two dollars' worth of goods for his stores,
having one in Georgetown also. It is insisted that these large
purchases were made with a prospective view to a failure and
compositions at thirty and fifty percent discount, the complainant
at the same time being perfectly solvent in fact. That purchasing
largely was an elaborated scheme with a view to future and feigned
insolvency, designed on the part of White to overreach his
creditors it is difficult to believe. His exertions to maintain his
credit after his first notes were dishonored and to quiet the
Baltimore creditors, whose suspicions had been awakened from his
heavy purchases in September, could not well have been more
earnest, active or ingenious, and this, up to the time when the
Baltimore creditors, by a bill of injunction, restrained
complainant from proceeding in his business, and which prostrated
his credit and character to such a degree as to render a failure
inevitable had the means of payment been ample as they are asserted
to have been.
It is probable that the appellant was insolvent, and knew the
fact to be so when he made the fall purchases of 1833, and that he
incurred the dangerous risk of so large an overtrading in the hope
that chance and a desperate effort might save him; that if he must
fail, it would not be material for what amount he failed, if he had
the goods on hand or their proceeds, should they be sold when the
event happened. This certainly was bad faith, if true, in reference
to the creditors from whom the stock of goods, for 1833, had been
purchased, but how it could affect the respondents, who had the
previous year trusted White on long credits cannot be perceived;
they received payment out of the goods thus obtained to the amount
of seventy percent, and in this aspect of the alleged fraud by
complainant on the wholesale dealers the appellants surely have no
just grounds to complain.
But the merits of the defense, it is earnestly urged, rest on
the question whether the appellee was solvent and able to pay his
whole debts at the date of the composition and contract to take a
part. On this head the evidence is tolerably satisfactory; an
account of White's
Page 37 U. S. 195
means and liabilities was demanded of him by the Baltimore
creditors as early as 3 December, 1833, which was furnished and is
no doubt substantially correct -- at least so the creditors treated
it, and nothing is found in the record to disprove the statement.
That he owed the debts there set forth is certain, and that he had
the means to meet them is very improbable, as the creditors
instituted and exercised a scrutiny not likely to overlook secreted
property, and money, there can be no doubt, there was none, for the
complainant, in good faith, seems to have discharged many of his
bank debts, with others, to the extent of all the cash he could
command, amounting to twelve thousand dollars, during the months of
October and November, 1833.
This brings us to the debts and means of payment. On 3 December,
the complainant owed in Baltimore fifteen thousand one hundred and
fifty-five dollars; in Philadelphia fourteen thousand four hundred
and sixteen; in New York ten thousand seven hundred and sixty-four;
and in Washington City nine thousand two hundred and fifty-one --
in all, forty-nine thousand five hundred and eighty-six
dollars.
The means of payment were the stocks of goods in Washington and
Georgetown, twenty-six thousand five hundred dollars; good debts,
two thousand four hundred and forty-six; doubtful debts, two
thousand five hundred and thirty-three -- the aggregate of active
means thirty-one thousand four hundred and forty-nine dollars.
Real estate four thousand dollars; household furniture one
thousand seven hundred and fifty; these items added to the goods
and debts, make thirty-seven thousand two hundred and twenty-nine
dollars' worth of property.
Then there were exhibited bad debts due to the complainant,
amount, ten thousand one hundred and sixty-five dollars. On these
desperate debts no businessman could place any reliance, and they
are therefore disregarded by the court when estimating the
available property of the appellee, and the same might with
something of safety be assumed of the item consisting of household
goods; the idea that the wealthy wholesale dealer will strip the
family of his unfortunate retail customer of their beds, furniture,
and utensils has no place in the mercantile transactions of this
country. Retaining this item, however, and the complainant had
twenty-five percent less property than the amount of the demands
against him, and of course could not have paid more than
seventy-five percent. The fourth of
Page 37 U. S. 196
forty-nine thousand five hundred and eighty-six dollars (the
aggregate of the debts) is twelve thousand three hundred and
ninety-six; the property in hand (thirty-seven thousand two hundred
and twenty-nine dollars) deducted from the indebtment, shows an
excess of debts over means of twelve thousand three hundred and
fifty-seven dollars.
This state of facts had been exposed to the creditors of the
appellee on 3 December, and Clarke and Briscoe applied for an
adjustment, on the 29th of the month; of course they were familiar
with it; they made no inquiry for information, and no demand for
more than seventy percent
The notes of appellants were not due, and they were obviously
and very justly impressed with the belief that the debt would be
lost if White did not compound it; he was urged by them to deliver
goods to cover seventy percent; this he at first declined, and
offered sixty, but on being reminded that others had received
payment at the rate of seventy percent, he with obvious reluctance
assented.
But more than seventy percent was received by Clarke &
Briscoe, because their notes were not then due. They pressed the
debtor to the highest rate of composition he was able to pay
consistently with his duty to the other creditors, and considering
the nature of his means and that he discharged this demand with the
most available means, it was probable that equal justice could not
be done to others.
These prominent and controlling facts repel the idea of a
feigned insolvency or that that the appellants were overreached by
deceitful devices.
The evidence tending to prove unfair conduct on the part of the
appellee in reference to his creditors in Baltimore, &c., had
little influence on the appellants, as we apprehend; how far it
extended it is difficult to ascertain. Be this however as it may,
they having received their full proportion of the appellee's
property, have no right to resist the prayer for relief, even had
the composition been made in subservience to an unfair but
extraneous influence, growing out of the transactions with the
other creditors, who were separately seeking payment. In equity, as
at 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. Truly there are
strong grounds of suspicion, but fraud ought not to be conceived;
it must be proved and expressly found.
Conard
v. Nicoll, 4 Pet. 297;
United
States v. Arredondo, 6 Pet. 716.
Page 37 U. S. 197
Again, it is contended that the appellants did not receive their
due proportion of the means of payment at the appellee's command
when the composition was made, because he held a lot with valuable
improvements thereon in Washington City, in the name of his
brother, by a conveyance purporting to be in trust for appellee's
three infant children, which deed, it is insisted, is pretense,
covinous, and void both in law and fact insofar as it affects the
appellants and other creditors; that being thus void, it furnishes
almost conclusive evidence of an intended fictitious failure, at
the time the goods were purchased from the appellants in 1832 and
for which the notes sought to be enjoined were given.
Much stress has been laid upon this transaction as somewhat of
an independent ground of defense in the pleadings, and also in the
arguments presented for the appellants; we therefore deem it a duty
to bestow upon this particular question a corresponding degree of
attention.
The facts it rests upon appear by the trust deed and the
deposition of the grantor, John A. Smith.
The lot was formerly the property of Daniel Brent, and was sold
early in 1829 as part of his property by John A. Smith, appointed
trustee of Brent's estate under an insolvent act, at which sale,
William G. W. White became the purchaser at the price of one
thousand five hundred and thirty-two dollars and thirty-four cents
on a credit of one, two and three years, the lot being sold at
auction for a full price and the sale notes paid at maturity, no
doubt exists of the appellee's former equity therein. He took
possession immediately after the purchase in 1829, and commenced
improving by erecting buildings thereon, the lot having been vacant
at the date of the purchase.
On 14 January, 1832, John A. Smith, at the request of William G.
W. White, conveyed the premises to James L. White in trust for the
three infant children of William G. W. White in fee. Between the
date of the purchase in 1829 and that of the conveyance in January,
1832, William G. W. White made improvements on the premises to the
value of about three thousand dollars, and added to them others,
costing twelve or fifteen hundred dollars, after the date of the
deed and before his failure in December, 1833. The property, at
this date, was worth about six thousand dollars.
Another attendant circumstance is strongly relied on to show the
fraudulent intent of the appellee. The deed of 14 January,
Page 37 U. S. 198
1832, was not delivered to the clerk to be recorded, until 13
July thereafter, and within one day of the expiration of the time
prescribed for such delivery, by the statute of Maryland, which is
six months, and the notes sought to be surrendered, are dated 2
July, 1832.
In reference to this conveyance it may be remarked that by the
common law it was 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. The deed from Smith to James L. White is therefore,
unimpeachable for the reason that it was delivered for registration
on the last day of the six months; nor is fraud predicable of the
mere circumstance of nonregistry as against William G. W. White,
who was not the grantee nor entitled to the possession of the deed.
How far fraud in fact might be inferred from not putting the deed
of record, taken in connection with other circumstances, is a
question involving the rights of third persons not before the
court, and which we do not take into consideration further than to
ascertain whether the appellee used the deed as a means of
deception in the transaction before us. If White represented the
property as not belonging to him, and settled with his creditors on
this basis, when it did belong to him, the question then is can the
appellants reverse the decree and dismiss the bill, and be let in
at law upon the property, and this presents another aspect of the
effect of the conveyance: as a legal title, it is not open to
imputation; William G. W. White never had any estate in the
premises recognized at law, or subject to execution; the title
passed directly from Smith to James L. White; consequently, if the
deed were pronounced void, the title would be adjudged in Smith; it
is one of those conveyances where there was clearly a
bona
fide grantor, and which is not within the statutes against
fraudulent conveyances, as was holden in
McNiel v. Brooks,
in 1 Yerger 73, which case followed that of
Crisp v. Pratt
in Croke 548. If the conveyance is open to imputation, it is so at
common law, and because of fraud in fact, and involves
substantially the same inquiries that did the case in this Court of
Sexton v.
Wheaton, 8 Wheat. 229, and
Hinde's
Lessee v. Longworth, 11 Wheat. 199. We will not say
but that on a proper case being made, and fraud in fact proved to
have been the moving cause of ordering to be vested in trust the
premises in the name of the appellee's brother, that the
Page 37 U. S. 199
latter would not be decreed to hold as trustee for the creditors
of William G. W. White, he having paid the consideration, but then
the property would be treated and applied as a trust fund, and be
so declared in equity on the sole ground that the transaction was
fraudulent in fact. No case is before us fairly to raise such a
question or to justify speculations affecting injuriously a title
valid at law and
prima facie good in equity when those
most interested in it are not before the Court.
There is another reason why the appellants cannot challenge the
validity of the title made by Smith to James L. White; it is this:
they made the composition with a full and perfect knowledge of the
facts attending the conveyance, and subsequent improvements of the
property; then they continued silent, and took the full benefit of
their contract, and cannot now be heard to speak. He who purchases
unsound property, with knowledge of the unsoundness at the time
cannot maintain an action. So if one compounds a debt or makes any
other contract with a full knowledge of all the facts, acting at
arm's length upon his judgment, and fails to guard against loss, he
must abide the consequences. Neither fraud nor mistake can be
imputed to such an agreement.
Eighth, it is contended:
The inequality alone in his various compositions with his
creditors (all the other circumstances of fraud being out of the
question) is a fraud
per se, both at law and equity, and
sufficient of itself either at law or equity to vitiate and set
aside each and every of the compositions, from the lowest to the
highest.
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, and cannot be
enforced against the debtor or any surety to it. 1 Story 371. The
doctrine was carried so far in the Court of Exchequer in England
some years since as to extend the principle to a case where the
creditors made separate contracts with the debtors, but with an
understanding that two shillings and sixpence in the pound was to
be paid, and one of the creditors got a secret bond, fraudulently
intending to induce others to enter into the composition, and the
bond was relieved against.
Fowett v. Gee, 3 Anstruther
910. Although this case, and
Spooner v. Whitsan, 8 Moore
580, in the common pleas, have been adduced to the Court as varying
the general principle, on examination of
Page 37 U. S. 200
them, we think they proceed upon it, and the case in Anstruther
presses the principle very far against the creditor; however they
might be, no great stress could be laid on them by the Court, and
the same may be said of
Small v. Brackley, 2 Ves. 602,
cited by the appellants' counsel.
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 like the
present, where each creditor acts not only for himself, but in
opposition to every other creditor, all equally relying upon their
vigilance to gain a priority which, if obtained, each being
entitled to have satisfaction, the payment cannot be questioned.
The debtor may prefer one creditor, pay him fully, and exhaust his
whole property, leaving nothing for others equally meritorious. Yet
their case is not remedial, and why may not debts be partially paid
in unequal amounts? If those who receive partial payments are
willing to give releases, it is their own matter, and should a
third person interfere, debtor and creditor could well say to him
you are a stranger, and must stand aside.
The case of the appellee presented a fair instance of the
propriety of paying some of his debts fully, and others partially.
He owed bank debts, secured by the endorsements of friends, whose
kindness was the only motive to incur the liability, to relieve
whom he did pay, and ought to have paid, large sums during October
and November, 1833.
The notes passed off to Clagett and Washington were transferred
before maturity, and before the contract of composition took place,
and of course their right was not affected by it. As to them, the
decree dismissing the bill was proper, as it is in all other
respects, and must be affirmed.
MR. JUSTICE BALDWIN dissented.
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the District of
Columbia holden in and for the County of Washington and was argued
by counsel. On consideration whereof it is decreed and ordered by
this Court that the decree of the said circuit court in this cause
be and the same is hereby affirmed with costs.
