A court of equity has jurisdiction of a bill against the
administrator of a deceased debtor and a person to whom real and
personal property was conveyed by the deceased debtor for the
purpose of defrauding creditors.
In such a case, the court does not exercise an auxiliary
jurisdiction to aid legal process, and consequently it is not
necessary that the creditor should be in a condition to levy an
execution if the fraudulent obstacle should be removed.
It is proper to make a prior encumbrancer who holds the legal
title a party to the bill, in order that the whole title may be
sold under the decree; for the purpose of such a decree, the prior
encumbrancer is a necessary party; but the court may order a sale
subject to the encumbrance without having the prior encumbrancer
before it, and in fit cases it will do so.
If the prior encumbrancer is out of the jurisdiction or cannot
be joined without defeating it, it is a fit cause to dispense with
his presence and order a sale subject to his encumbrance, which
will not be affected by the decree.
The bill was originally filed in the names of John Hagan, of New
Orleans and a citizen of the State of Louisiana, and Thomas
Barrett, of New Orleans, and a citizen of the State of Louisiana,
formerly commission merchants and partners, trading under the firm,
name, and style of John Hagan & Co., complainants, against
William H. Pope, of Huntsville, and a citizen of the State of
Alabama, Samuel Breck, of Huntsville, and a citizen of the State of
Alabama, the said Breck being the administrator of the estate of
Leroy Pope, who in his lifetime resided in Huntsville and was a
citizen of the State of Alabama, and Charles B. Penrose, of
Washington City and a citizen of the District of Columbia and
successor in office of Virgil Maxcy, who in his lifetime resided in
Washington City, and was a citizen of the District of Columbia, and
Solicitor of the Treasury of the United States.
The suit was commenced in February, 1846. The plaintiffs were
judgment creditors of Leroy Pope by a judgment rendered in April,
1834, upon which an execution in October, 1834, was returned "No
property found."
The plaintiffs sought to obtain satisfaction of this judgment
from property which they allege the said Leroy Pope conveyed
fraudulently to his son William H. Pope, the defendant.
This property was conveyed, March, 1834, by Leroy Pope to
Page 55 U. S. 30
William H. Pope, and upon considerations which the plaintiffs
alleged to be colorable and inadequate.
The property thus conveyed was charged to have been the whole
estate of the said Leroy, and William H. Pope was charged to have
been, before that time, without property, and to have had no means
of payment for this.
The plaintiffs alleged that the property was never delivered to
the "exclusive possession" of William H. Pope, but "remained as
much in the possession of the said Leroy as the said William, and
that the said Leroy and William enjoyed the proceeds and profits
jointly."
They alleged that William H. Pope, in March, 1834, conveyed the
land and slaves to the Solicitor of the Treasury in mortgage to
secure a debt due to the United States by the said Leroy Pope of
$29,290.90, which William H. Pope at that date assumed, and for
which he gave his notes, and that at the same date he guaranteed to
the United States a debt of $20,000, for which other security had
been given to the United States by Leroy Pope.
They averred that the $20,000 thus mentioned was paid from the
securities deposited by Leroy Pope, and that the only debt really
incurred by William H. Pope was that for $29,290.90. This debt the
plaintiffs admitted to be a charge on the property, and they did
not contest it. They charged, however, that the securities to the
Solicitor of the Treasury were designed by the grantor William H.
Pope as a fraud upon the creditors of Leroy Pope.
The death of Leroy Pope was alleged to have occurred in 1844 and
the appointment of Breck as administrator in 1844.
The prayer of the bill was that the conveyances of Leroy and
William H. Pope should be declared null. That, after satisfying the
debt of the United States, the remainder of the property should be
appropriated to satisfy the debt of the plaintiffs. Process was
prayed against William H. Pope and Samuel Breck, administrators of
Leroy Pope, and the Solicitor of the Treasury, Penrose, a citizen
of the District of Columbia.
The defendants, Breck and Pope, demurred to the bill; the
demurrer was allowed by the district court, and the bill was
dismissed.
An appeal from this decree of dismissal brought the case up to
this Court.
Page 55 U. S. 32
MR. JUSTICE CURTIS delivered the opinion of the Court.
John Hagan & Co. filed their bill in the District Court of
the United States for the Northern District of Alabama in which
they state that in the year 1834 they recovered a judgment at law
in that court against Leroy Pope for upwards of seven thousand
dollars, which is wholly unsatisfied; that a writ of
fieri
facias, running against the lands, goods, and body of the
debtor, was regularly issued, and, on the 10th day of October,
1834, was returned
nulla bona, and from that time to the
filing of the bill there has not been, in that district or
elsewhere, any property of Leroy Pope out of which the judgment
debt could be collected except certain property afterwards
mentioned. The bill further alleges that about a month before the
complainants recovered their judgment at law, Leroy Pope, intending
to defraud the complainants and to hinder them from obtaining
payment, made conveyances, both of real and personal estate, to a
large amount, to his son, William H. Pope, who was a party to the
fraud and is made a defendant in the bill; that Leroy Pope died in
the year 1844, and Samuel Breck, who was appointed his
administrator, is also a party defendant. The complainants are
averred to be citizens of Louisiana, and William H. Pope and the
administrator citizens of Alabama. The defendants having demurred
to the bill, it was dismissed by the district court and the
complainant, who is the surviving partner, appealed to this
Court.
The principal ground upon which the demurrer has been rested in
this Court is that the bill does not show that the complainants are
entitled to equitable relief. The argument is that the jurisdiction
of a court of equity to aid a judgment creditor
Page 55 U. S. 33
by removing a fraudulent encumbrance on the property of his
debtor is ancillary merely; that this aid is not given unless the
creditor has obtained a lien at law upon the specific property
sought for, if that be legal property upon which an execution could
be levied; or if it be equitable assets, not liable to a levy by
execution; that the creditor must have exhausted his legal remedy
by a return of
nulla bona on his execution, and must also
be in a condition to proceed at once at law to enforce his right if
the obstacle should be removed. That if his judgment has become
ineffectual to entitle him to an execution, so that he could not
levy, even if the assets were legal and not subject to any
fraudulent encumbrance, equity will not exert itself to subject
equitable property to the payment of his judgment. And it is
further argued that, according to the local law of Alabama
governing these proceedings at law, the judgment creditors had lost
their lien on the personal estate of the debtor because they had
suffered more than one term to elapse without issuing an alias
execution, and upon the real estate because more than ten years
elapsed after the return of their last execution and before this
bill was filed, and that the lien both upon the personal and real
estate was destroyed by the death of Leroy Pope, which suspended
the right to issue an execution. That by reason of his death and
the lapse of more than ten years, the right to issue an execution
being suspended, equity would not subject equitable assets to the
payment of this judgment.
It does not distinctly appear whether the property sought to be
reached by this bill is equitable or legal. There is reason to
suppose from some allegations in the bill that a part or the whole
of the property was conveyed by Leroy Pope in 1831 to Louis McLane,
as Secretary of the Treasury, to secure a debt due to the United
States by a deed of trust, and this conveyance is not impeached. If
it embraced the whole or any part of the property now in question,
only an equitable estate therein was left in Leroy Pope. The bill
is not distinct in its allegations on this subject, but we do not
deem it necessary that it should be, because we are of opinion that
this case is not to be treated as an application by a judgment
creditor for the exercise of the ancillary jurisdiction of the
court to aid him in executing legal process, but comes under a head
of original jurisdiction in equity. It is a bill by a creditor of a
deceased debtor against the administrator and a party who is
fraudulently holding all the property of the deceased which in
equity should be applied to the payment of this debt, and the bill
prays that the debt may be paid out of this fund. That a single
creditor may maintain a bill against an administrator of a
deceased
Page 55 U. S. 34
debtor for a discovery of assets and the payment of his debt
there can be no doubt. That in some cases he may join with the
administrator a third person who is in possession of property which
is amenable to the payment of the debt is also clear. The instances
in which it has been actually held that such third person might be
joined are chiefly cases of collusion between the administrator and
the third person possessed of assets, insolvency of the
administrator, and where the third person was the surviving partner
of the deceased.
Utterson v. Mair, 2 Ves.Jr. 95;
Alsager v. Rowley, 6 Ves. 748;
Burroughs v.
Elton, 11 Ves. 29;
Gedge v. Traill, 1 Russ. & M.
281;
Long v. Majestre, 1 Johns.Ch. 306. But it will be
found that the equitable right of the creditor to join a third
person and have a discovery and an appropriation of assets held by
him has never been limited to these particular cases.
For while it is generally agreed that some special case must be
made, it is also declared in all the cases that what is to
constitute it has not been limited by any precise and rigid rule.
In
Holland v. Prior, 1 My. & K. 240, Lord Brougham
applied the rule to the case of a representative of a deceased
representative, without any suggestion of collusion between him and
the present representative. In
Simpson v. Vaughn, 2 Atk.
33, Lord Hardwicke said:
"It has been said at the bar that you may make any person a
defendant that you apprehend has possessed himself of assets upon
which you have a lien. But this certainly cannot be laid down as a
general rule, for it would be of dangerous consequence to insist
that you can make any person a defendant who has assets unless you
can show to the court he denies that he has assets or applies them
improperly."
Considering, then, that some special and sufficient reasons must
be shown for proceeding against a third person jointly with the
administrator, the inquiry is whether this bill does not contain
those reasons, and we are of opinion it does.
It appears from the statements in the bill that William H. Pope
is in possession of all the assets of the deceased debtor, both
real and personal, holding them under conveyances made to him by
the deceased, absolute in form, but accompanied by secret trusts in
favor of the grantor, designed to defraud this particular creditor
and prevent him from obtaining payment of his judgment, and that
this fraudulent design has thus far been successfully executed.
Now these conveyances are not only valid on their face, but they
are really valid as between the parties, and though they are void
as against creditors and the property, both at law and in equity,
is subject to the payment of the debts of the deceased, yet the
embarrassments attending any attempt by the
Page 55 U. S. 35
administrator to possess himself even of that part of these
assets which were personalty at law would certainly be great, and
perhaps insuperable. 2 Rand. 384;
Martin v. Root, 17 Mass.
228. It is true he is the representative of creditors as well as of
the next of kin, and in the former capacity might be able to make
good his claim to a sufficient amount of these personal assets to
enable him to pay the debts.
Holland v. Cruft, 20 Pick.
321. But the impracticability of taking an account of the debts at
law and proportioning the recovery to the amount required to pay
them would render a resort to equity indispensable to do entire
justice between all parties even if the assets were legal in their
nature. If this bill had contained an allegation that the
administrator had been requested to sue and had refused, the case
would be free from all doubt, and upon the facts averred in the
bill, we do not think such a request necessary, because it does
appear that about two years elapsed after the death of Leroy Pope
before this bill was filed, and the administrator took no step to
reduce these assets to possession; because, when this bill was
filed, he resists it by a demurrer, relying on the statute of
limitations; because it must be admitted to have been doubtful how
far he had a remedy, without the concurrence of any creditor; and
chiefly because there is no danger of interfering with the due
course of administrations, or taking from administrators their
proper control over suits for the recovery of assets, by holding
that a creditor may file a bill against the administrator and the
fraudulent grantee of deceased debtor, to subject the property
fraudulently conveyed to the payment of the debt. It comes within
the case put by Lord Hardwicke, for here this specific property is
amenable to the claim of this creditor, and in the sense in which
he employs the word, the creditor had a lien upon these assets; and
it does appear to the Court that the party holding them both denies
that they are assets and applies them improperly, for he claims
them as his own, and is endeavoring to defeat a just creditor by an
assertion of a title invalid as against him.
In this view of the case, it is not essential that the creditor
cannot proceed at law until after a revival of the judgment by a
scire facias. In
Burroughs v. Elton, 11 Ves.
36-7, Lord Eldon had occasion to consider the force of this
objection in a similar case. It was a bill to reach real assets in
the hands of a surviving partner. The complainant's judgment was
upwards of seventeen years old, and no step had been taken to
revive it against the administrator or the heir. His decision, in
accordance with two previous cases to which he refers, was that
such a creditor could sustain the bill, though it might be
necessary to direct him to proceed at law to revive his
judgment.
Page 55 U. S. 36
It has been argued that the bill does not show that there are
not other assets in the hands of the administrator sufficient to
pay this debt, and contains no allegation that the administrator
was ever requested to pay it. But the bill does expressly aver
that, aside from the property fraudulently conveyed, there is not
anywhere any property of Leroy Pope out of which the debt could be
collected, and although it states that the fraudulent grantor and
grantee both remained in possession and took the crops jointly, and
that these crops were of great value, yet inasmuch as between
themselves the crops belonged to the grantee and as it was the
object of the conveyances to prevent them from being applied to the
benefit of creditors, we are of opinion there is no presumption
that anything arising from this joint possession ever came to the
hands of the administrator, and therefore that a demand on him
would have been a vain act which the creditor was not compelled to
do.
One other ground on which the demurrer has been rested requires
notice. The bill alleges that after the fraudulent conveyances to
William H. Pope had been made, he mortgaged the property to Virgil
Maxcy, as Solicitor of the Treasury of the United States, to secure
the debt of Leroy Pope which William H. Pope assumed to pay, and it
avers that this debt has been in part paid by means described in
the bill. Virgil Maxcy and, subsequently when he went out of
office, his successor, Charles B. Penrose, were named as parties to
the bill, but they were out of the jurisdiction, no process was
served on either of them, and neither ever appeared or answered.
The bill prays that William H. Pope may be compelled to pay to the
United States the balance due to them out of the property in
question, and that the residue may be subjected to the payment of
the complainant's debt, and for other and further relief.
Under the Act of Congress of the 28th of February, 1839, 5 Stat.
321, ยง 1, does not defeat the jurisdiction of the court that a
person named as defendant is not an inhabitant of or found within
the district where the suit is brought; the court may still
adjudicate between the parties who are properly before it, and the
absent parties are not to be concluded or affected by the
decree.
It is obvious, however, that there may be cases in which the
court cannot adjudicate between the parties who are regularly
before it for the reason that it cannot bind those who are absent.
Where no relief can be given without taking an account between an
absent party and one before the court, though the defect of parties
may not defeat the jurisdiction, strictly speaking, yet the court
will make no decree in favor of the complainant.
Page 55 U. S. 37
The case before us is not one of this character, for although
the whole of the relief specially prayed for cannot be granted in
the particular mode there indicated, because the United States not
being a party, no account can be taken of the debt due to them from
Leroy Pope or William H. Pope, yet, subject to the encumbrance of
this debt and without affecting it in any manner, the property may
be appropriated to the payment of the complainant's debt.
It is true, that in
Finley v. Bank of the
United States, 11 Wheat. 306, which was a bill to
foreclose a mortgage by sale, Chief Justice Marshall says:
"It cannot be doubted that the prior mortgagee ought regularly
to have been a party defendant, and that had the existence of his
mortgage been known to the court, no decree ought to have been
pronounced in the cause until he was introduced into it."
But it could not have been intended by this to say that a prior
encumbrancer was absolutely a necessary party without whose
presence no decree of sale could be made, because in that very case
the court refused to treat the decree as erroneous after it had
been executed.
In
Delabere v. Norwood, 3 Swanst. 144 n, in a bill to
obtain payment of an annuity charged on land, prior annuitants were
held not to be necessary parties. In
Rose v. Page, 2 Sim.
471, the same rule was applied to a prior mortgagee, and in
Wakeman v. Grover, 4 Paige 23, and
Rundell v. Marquis
of Donegal, 1 Hogan 308, and
Post v. Mackall, 3 Bland
495, to prior judgment creditors; and in
Parker v. Fuller,
1 Russ. & My. 656, persons having encumbrances on real
property, which the bill sought to subject to the payment of debts
of the deceased owner, were held not to be necessary parties to the
bill.
See also Hoxie v. Carr, 1 Sum. 173; Calvert on
Parties, 128.
On the other hand, there are cases in which it has been declared
that all encumbrancers are necessary parties. Many are collected in
Story's Ed.Pl. 178 n. But we consider the true rule to be that
where it is the object of the bill to procure a sale of the land,
and the prior encumbrancer holds the legal title, and his debt is
payable, it is proper to make him a party in order that a sale may
be made of the whole title. In this sense and for this purpose, he
may be correctly said to be a necessary party -- that is, necessary
to such a decree. But it is in the power of the court to order a
sale subject to the prior encumbrance, a power which it will
exercise in fit cases. And when the prior encumbrancer is not
subject to the jurisdiction of the court or cannot be joined
without defeating its jurisdiction, and the validity of the
encumbrance is admitted, it is fit
Page 55 U. S. 38
to dispense with his being made a party. To such a case the 47th
rule for the equity practice of the circuit courts of the United
States is applicable, and by force of it this cause may proceed
without making the United States or the Solicitor of the Treasury a
party to the decree.
The decree of the district court must be reversed and the
case remanded with directions to overrule the demurrer and order
the defendants, other than the representative of the United States,
to answer the bill.
Order
This cause came on to be heard on the transcript of the record
from the District Court of the United States for the Northern
District of Alabama, and was argued by counsel. On consideration
whereof it is now here ordered, adjudged, and decreed that the
decree of the said district court in this cause be and the same is
hereby reversed with costs, and that this cause be and the same is
hereby remanded to the said district court with directions to
overrule the demurrer and to order the defendants, other than the
representative of the United States, to answer the bill.