Deeds of large tracts of land made by a grantor when deeply in
debt and when suits were pending against him, and who shortly
afterwards petitioned for the benefit of the bankrupt act, the
possession and occupation of the land continuing the same after the
sale as before, and the consideration money one-half only of the
actual value, held to be fraudulent and void as against
creditors.
This was an appeal from a decree of the Circuit Court of the
United States for the Eastern District of Virginia. The bill was
originally filed in the circuit court by Edmund Christian, general
assignee in bankruptcy in said district on the 19th of May, 1845,
and upon his death, Wyndham Kemp was appointed assignee, on the
12th of May, 1852, by the district court. After that, Kemp
prosecuted the suit.
On or about the 17th of February, 1843, John L. Hudgins filed
his petition in the District Court of the United States for the
Eastern District of Virginia praying that he might have the benefit
of the Act of Congress of August 19, 1841, to establish a uniform
system of bankruptcy throughout the United States, and that he
might be deemed and declared a bankrupt under said law, and the
usual proceedings having been taken upon said petition, the said
John L. Hudgins was, on the 20th May, 1843, duly adjudged and
declared to be a bankrupt, and Edmund Christian, the general
assignee in bankruptcy in said district, was thereupon duly
appointed by said court, the assignee in bankruptcy of said John L.
Hudgins.
Other proceedings were had in the district court, which it is
not material here to mention.
On the 17th of May, 1845, the following points and questions
were adjourned to the circuit court for decision:
1. Is the allegation of the objectors to the discharge of the
bankrupt, that the deed executed by said John L. Hudgins, bearing
date the 1st day of March, 1842, to Elliott W. Hudgins, conveying
all the rest of his land in York, not conveyed by a previous deed
of 6th September, 1839, is a fraudulent deed within the meaning of
the bankrupt law, sustained by the evidence in this case?
2. Is the allegation of the objectors, that the deed executed by
said John L. Hudgins to Houlder Hudgins, dated 19th July, 1842,
stating a consideration of $4,000, is a fraudulent deed within the
meaning of the bankrupt law, sustained by the proofs?
Page 61 U. S. 46
3. Is the deed of the 21st February, 1842, in which John L.
Hudgins conveys to Robert Hudgins, for an alleged consideration of
$5,000, his tract of land in Matthews County, proved to be a
fraudulent deed within the meaning of the bankrupt law?
4. Are the allegations of the objectors, that the petitioner
concealed himself and his effects, so as to prevent the execution
of process, and the deeds aforesaid were made for the purpose of
eloigning and removing his property so as to defraud his creditors,
shown to be true?
5. Whether it is proved that the said John L. Hudgins has not
made a true and faithful schedule of all his estate and property,
nor a full and true statement of all the debts due him?
6. Finally, whether the petitioner, on any or all of the above
grounds, ought to be refused a discharge from his debts?
On the 19th of May, two days after the above questions had been
adjourned to the circuit court, the assignee filed his bill in that
court, alleging that the conveyances above mentioned were
fraudulent and void and praying that they might be set aside. The
proceedings which took place thereupon are set forth in the opinion
of the court.
On the 27th of June, 1855, the circuit court passed its final
decree confirming the report of the master and ordering the
property in question to be sold by the assignee. From this decree
the defendants appealed to this Court.
Page 61 U. S. 50
MR. JUSTICE NELSON delivered the opinion of the Court.
This is an appeal from a decree of the Circuit Court of the
United States for the Eastern District of Virginia.
The bill was filed in the court below by the assignee in
bankruptcy of John L. Hudgins, against Robert Hudgins and others,
to set aside the conveyance of a large real estate charged to have
been made by the bankrupt to the said Robert, in fraud of his
creditors and of the bankrupt law of the 19th August, 1841. The
deed of conveyance purports to have been executed on the 21st
February, 1842, but was not recorded till the 8th August following;
and conveyed, for the alleged consideration of $5,000, three tracts
of land -- one tract of one hundred acres, one of nine hundred, and
another of seventy acres -- being, in the aggregate, one thousand
and seventy acres, situate in the County of Mathews, State of
Virginia. The bankrupt's place of residence was upon one of the
tracts. The deed of conveyance contained a clause that the lands
should be subject to any judgments that then bound them by
operation of law. John L. Hudgins, the grantor, was heavily in debt
at the time of the execution of the deed, and judgments to a large
amount were soon after recovered against him. Executions were
issued upon these judgments, and the defendant endeavored, by
various ways and contrivances, to conceal his person and property
from the reach of them. This was in the spring and summer of
1842.
On the 17th February, 1843, John L. Hudgins presented his
petition to the district court for the benefit of the bankrupt act,
annexing thereto a schedule of his debts and property -- the debts
exceeding $12,000; property none, except a contingent interest in a
deed of trust by T. Hudgins, for the benefit of creditors. On the
20th May, 1843, the petitioner was declared a bankrupt, and on the
19th September following an order was made, providing for the
creditors to show cause, on a given day, why the petitioner should
not have granted to him a certificate of discharge from all his
debts. The creditors appeared, and resisted the discharge. Much
testimony was taken on their behalf, tending to establish the
fraudulent transactions of the bankrupt with Robert Hudgins and
others, which are now relied upon to set aside the deed in
question. The opposition to granting the discharge resulted in the
district court adjourning several questions of law and fact to the
circuit court for its decision. What disposition was made of them
in that court, we are not advised.
Page 61 U. S. 51
The defendant, Robert Hudgins, in order to prove the payment of
the purchase money of the lands conveyed in the deed of the 21st
February, introduced two receipts from John L. Hudgins -- one for
$3,055, dated 6th August, 1844; the other, 12th August, same year,
for $1,425 -- and proved the execution of the same by witnesses,
who counted the money was saw it paid.
The several tracts of land conveyed were worth, as testified to
by witnesses, over $10,000, double the amount of the purchase
money. The possession and occupation of the same, subsequent to the
sale, seems not to have been changed. Indeed, John L. Hudgins, in
his receipt of the payment of the $1,425, 12 August, 1844,
describes the land as being the same as that upon which he resides,
and has resided for years. He and his sons have cultivated and
improved the arable land, cut and sold timber from the woodland,
since the sale to the defendant, Robert, the same as before, the
latter apparently exercising no control or acts of ownership over
the property.
In the fore part of July, 1842, some four months after the
alleged conveyance, John L. Hudgins made application to certain
individuals to borrow a considerable sum of money, to relieve
himself from judgments and executions then pressing upon him, and
proposed giving a deed of these same lands, in trust to the
lenders, as security for the loan. The writings were prepared with
a view to carry into effect this arrangement, and the defendant was
present, assenting to it, without disclosing that a conveyance had
already been made to him.
A good deal of other evidence was given in the case, bearing
more or less upon the question of fraud, which it is not material
to recite, and which will be found in the record.
The court below, on the 18th May, 1848, decreed that the deed of
John L. Hudgins, the bankrupt, to Robert, his brother, of the 21st
February, was fraudulent and void as against creditors, and
appointed the assignee in bankruptcy a receiver, to take possession
of the property, and directed that a master should take an account
of the rents and profits from the petition in bankruptcy to the
time when the receiver took possession. The master subsequently
reported the amount at the sum of $2,320.26, and on the 27th June,
1855, a final decree was entered. The cause is now before this
Court on an appeal from this decree.
It was scarcely denied on the argument, and indeed could not be,
that John L. Hudgins, the bankrupt, had been guilty of a fraudulent
contrivance to hinder and defraud his creditors on the execution of
the conveyance in question; but it has been strongly that Robert,
the grantee, was not privy to
Page 61 U. S. 52
the fraud, and hence was a
bona fide purchaser for a
valuable consideration. We shall not, therefore, deem it material
to refer to any portion of the mass of evidence in the case except
so far as it bears upon the connection of the grantee with this
question of fraud.
The answer of the defendant to the bill is not very
satisfactory. The bill charges that the deed, though it bears date
21st February, 1842, was really executed on or about the 2d of July
following, the time it was put on record, and that it was antedated
in pursuance of the fraudulent purpose charged against the parties.
The answer does not notice or deny this allegation. Again, the bill
charges that the deed was not delivered at the time it bears date,
nor in fact delivered at all to the grantee in any other way than
the putting of it on record by the grantor himself. This charge is
not noticed or denied; neither is the allegation denied that the
grantor remained in the possession and enjoyment of the property
after the conveyance the same as before. And this averment, besides
being thus virtually admitted, is fully established by the proofs
in the case.
The consideration or purchase money agreed to be given for the
three tracts of land conveyed was less than one-half the value, as
proved by uncontradicted testimony. The deed contained a clause
that the lands should be subject to any judgments that were then a
lien upon them, and it was urged, on the argument, that these
judgments should be taken into the account, on fixing the amount of
the purchase money. But the answer is that it does not appear, from
any evidence in the case, that judgments existed against John L.
Hudgins at the date of the deed. We have examined the proofs
attentively, and find none; nor have any been referred to in the
briefs of the counsel. It also appears that Robert, the grantee,
some four months after the date of his deed, and when the title to
the lands in question was in him, if the conveyance had been really
made at its date, was present, and participated in a negotiation
for a loan of money to John L. Hudgins, and which was to be secured
by a deed from him of these very lands, in trust, to the persons
advancing the money.
The conduct of the defendant, Robert, in this instance,
furnishes the foundation for a strong inference, either that the
deed had not then been executed and delivered, or, if it had been,
that the grantee held it for the use and benefit of John L.
Hudgins, the grantor. In either view, the fact affords a well
founded suspicion of the
bona fides of the transaction
between the parties.
In respect to the payment of the purchase money, of which
Page 61 U. S. 53
very formal proofs have been given of the principal part of it,
the effect in support of the conveyance is very much impaired by
the fact that John L. Hudgins, in the schedule of his estate
annexed to this petition in bankruptcy, 23 February, 1843, takes no
notice of this indebtedness to him, by Robert, the grantee, and the
truth of the schedule is verified under oath. This was a year and
two days after the date of the deed, and when the purchase money
was unpaid, if the facts are true, as insisted by both the parties
subsequently, upon the question of payment. They now admit this did
not take place till August, 1844. No attempt had been made to
account for or reconcile this inconsistency, if not worse, on the
part of John L. Hudgins. Without pursuing the examination of the
proofs in the case further, we will simply say that after the
fullest consideration of the facts in the case, we are satisfied
with the conclusion arrived at by the court below upon this
question.
But it is insisted that, admitting the conveyance to be void as
it respects the creditors of John L. Hudgins, the court below erred
in ordering a sale of the property without having first ascertained
the debts of the bankrupt and permitting the grantee in the deed to
redeem on paying them or directing only so much of the land to be
sold as would be sufficient to pay the debts.
The answer to this is that the defendant, Robert Hudgins, made
no offer to pay the debts on ascertaining the amount, and for aught
that appears, the whole of the property will be no more than
sufficient to pay the liabilities of the bankrupt. If there should
by chance be any surplus, it belongs to the court in bankruptcy to
dispose of it. Whether it should go to the bankrupt or to his
grantee will be for that court to determine.
It is also insisted that the court below erred in decreeing the
rents and profits of the lands in controversy against the
defendant, Robert Hudgins, for the reasons that it is not shown
that he was in the possession and enjoyment of the same, and also
that the court erred in decreeing these rents and profits from the
filing of the petition in bankruptcy instead of from the decree
declaring John L. Hudgins a bankrupt.
The short answer to each of these objections is that no such
exceptions were taken to the report of the master, and are
therefore not properly before us. That was the time and place to
have presented these questions, and the omission precludes any
question here on the matter.
The decree of the court below affirmed.
