A debtor in failing circumstances cannot sell and convey his
land, even for a valuable consideration, by deed without
reservations, and yet secretly reserve to himself the right to
possess and occupy it, for even a limited time, for his own
benefit. Nor will this rule of law be changed by the fact that the
right thus to occupy the property for a limited time is a part of
the consideration of the sale, the money part of the consideration
being on this account proportionably abated.
Appeal (submitted) from the District Court of the United States
for Western Arkansas. Aird being indebted and having subsequently
failed, either sold or conveyed under a pretense of a sale certain
town lots at Fort Smith, Arkansas, which he owned, and which had
cost him, it seemed, $1,900, to one Spring. Spring paid him $1,200
in money, agreeing that Aird should have the use of two of the lots
for one year free of rent, and with a privilege, so long as Spring
did not desire to make any use of them himself or to sell them, of
renting them at $100 a year -- the money paid being made less on
account of this right to use the lots rent free for the year. Aird
was at this time a single man, but was married directly afterwards
and occupied the two lots from November 23, 1853, till the spring
of 1856. Lukins, one of his creditors, now filed a bill against
both Aird and Spring, alleging that the transaction was fraudulent
in fact and in law and praying that the conveyance might be
declared void and the property subjected to the claims of
creditors. The court below, conceiving that the proofs established
no fraud in fact, and apparently that the interest reserved was a
part of the consideration, and not of great value, dismissed the
bill. Lukins appealed, and the case was now here for review.
Page 73 U. S. 79
MR. JUSTICE DAVIS delivered the opinion of the Court.
It is not important to inquire, whether, as a matter of fact,
the defendants had a purpose to defraud the creditors of Aird, for
the fraud in this case is an inference of law, on which the court
is as much bound to pronounce the conveyances in question void as
to creditors as if the fraudulent intent were directly proved.
There is no necessity of any general discussion of the provisions
of the statutes of Elizabeth concerning fraudulent and voluntary
conveyances, as this suit is within narrow limits, and the
principle on which we rest our decision too well settled for
controversy. The law will not permit a debtor in failing
circumstances to sell his land, convey it by deed, without
reservations, and yet secretly reserve to himself the right to
possess and occupy it for a limited time, for his own benefit.
* Such a transfer
may be upon a valuable consideration, but it lacks the element of
good faith, for while it professes to be an absolute conveyance on
its face, there is a concealed agreement between the parties to it,
inconsistent with its terms, securing a benefit to the grantor at
the expense of those he owes. A trust thus secretly created,
whether so intended or not, is a fraud on creditors because it
places beyond their reach a valuable right -- the right of
possession -- and gives to the debtor the beneficial enjoyment of
what rightfully belongs to his creditors.
Page 73 U. S. 80
In this case, the conveyances which are impeached are attended
with a trust of this nature, and cannot be sustained against the
creditors of Aird. It is in proof that Aird retained the possession
of the premises, which he sold and conveyed, from the 23d day of
November, 1853, the date of the deed, until the spring of 1856, in
pursuance of a parol agreement, incompatible with the conditions of
the deed. By this agreement he reserved the right of possession for
one year free of rent, and this reservation constituted a part of
the consideration paid by Spring for the property, and, being
contrary to the provisions of the deed, was the creation of a
secret trust for the benefit of Aird to the extent of the interest
reserved, and therefore rendered the conveyance fraudulent as to
creditors and void. If Spring could in this way pay part of the
consideration, why not extend the term of the reservation, and pay
the whole of it? It makes no difference in the legal aspect of this
case that the interest reserved was not of great value. It is
enough that it was a substantial interest for the benefit of the
grantor reserved in a manner which was inconsistent with the
provisions of the deed.
Decree reversed and the court below ordered to enter a
decree setting aside the conveyance as fraudulent.
*
Wooten v. Clark, 23 Miss. (1 Cushman) 75;
Arthur
v. Com. & Railroad Bank, 9 Smeedes & Marshall 394;
Towle v. Hoit, 14 N.H. 61;
Paul v. Crooker, 8
id. 288;
Smith v. Lowell, 6
id. 67.
