In order to defeat a settlement by a husband upon his wife, it
must be intended to defraud existing creditors or creditors whose
rights are expected shortly to supervene or those whose rights may
and do supervene.
MR. JUSTICE SWAYNE delivered the opinion of the Court.
The law of this case is too well settled to admit of doubt. In
order to defeat a settlement made by a husband upon his wife, it
must be intended to defraud existing creditors or creditors whose
rights are expected shortly to supervene or creditors whose rights
may and do so supervene, the settler purposing to throw the hazards
of business in which he is about to engage upon others, instead of
honestly holding his means subject to the chance of those adverse
results to which all business enterprises are liable.
8 Wheat. 229; Mullen v. Wilson,
Wright 413; Stileman v. Ashdown,
2 Atk. 481.
Page 92 U. S. 184
Fraud is always a question of fact to be determined by the court
or jury upon a careful scrutiny of the evidence before it.
The view which we take of this case renders it unnecessary to
consider the objections urged by the counsel of the appellants
against the reference to the master, the exceptions to the master's
reports, and the questions raised by the demurrers to the original
and the amended bill.
Passing by these subjects and looking only to the merits of the
controversy, two points to be examined arise. They involve
questions of fact which must be solved in the light of the evidence
found in the record. The burden of proof rests upon the
1. What was the pecuniary condition of the bankrupt when the
property in question was bought at the sale under execution and
conveyed by the sheriff to Esther A. Smith?
The date of the transaction was the 2d of June, 1862. The amount
paid was $1,450. The property consisted of a dwelling house and
store room which she had leased in the year 1859. The rent was $150
per year. She and her husband occupied the premises up to the time
of the sale. She kept a dry goods store and a millinery and
dressmaking establishment in her own name. She was eminently
successful. The bill avers and admits that, at the time of the
purchase of the property, she had realized profits to the amount of
$10,000, and that the property was paid for out of this found.
There is proof in the record to the same effect. In conducting her
business, she paid promptly, and it does not appear that she then
or subsequently owed anything which is unpaid. The husband had paid
all his debts except two. For those he had given extension notes,
having short times to run, and they were paid at maturity.
This investment for the benefit of the wife was never challenged
by any creditor of the husband or the wife, and it is not now
challenged in behalf of any creditor whose debt subsisted then or
accrued for a considerable time afterwards. Under the
circumstances, the investment was moderate in amount, proper to be
made, and, we think, liable to no legal objection as to its
validity. The testimony to be considered in connection with the
next point throws a backward light which is also favorable to the
wife with respect to this part of the case.
Page 92 U. S. 185
2. What was the pecuniary condition of the bankrupt when he
extinguished the ground rent by which the property was
The money was paid about the 1st of January, 1866, and the
amount was $3,000.
After the 1st of January, 1863, the business, which had before
been carried on in the name of the wife, was conducted in that of
the husband. It continued to be prosperous for several years. He
thinks he made from $10,000 to $15,000 a year. He sold the first
year from fifty to sixty thousand dollars' worth of goods. Such is
his testimony, and it is uncontradicted. He paid all his debts and
considered himself in independent circumstances. His standing was
such that he had no difficulty in buying goods on credit. A
merchant says, "His credit was good. I was willing and anxious to
sell him all the goods I could" (Corbin's testimony). The cashier
of the Fourth National Bank, speaking of his credit in that
institution between the years 1864 and 1868, says, "He was able to
get all he asked for, which was the greatest amount at one time,
$5,000, only on account of his average good balance in bank"
No debt now exists which existed prior to 1868, and there is
none now existing which can be said in any sense to stand in
renewal or continuity of any such prior debt.
In the early part of 1867, there was a marked reflux in the tide
of prosperity throughout the country. It swept many of those
exposed to it into hopeless insolvency. The bankrupt became
embarrassed and depressed. His wife proposed to relieve him by
making a loan of $4,000, to be secured by a mortgage upon the
property in question. This suggestion was carried out. The loan was
made and the mortgage given in March, 1867. The money was paid over
to his creditors. This enabled him for a time to weather the storm.
But times grew worse. The shrinking in the value of dry goods was
immense. He testifies that muslins for which he paid seventy cents
per yard he was compelled to sell for twenty.
His loss by shrinkage he estimates at $20,000. In 1868, when his
stock had been reduced in value to about $20,000, he sold it for
that sum to the clerks, all females and relatives, who
Page 92 U. S. 186
had been employed in the store, and took their notes
accordingly. These notes he endorsed to his creditors. Some of them
have been paid, and others not. When the stock in the hands of the
vendees had been reduced to a remnant, worth about $2,000, it was
sold under process in favor of his wife for the payment of the
accumulated rents due to her.
The mortgage to secure the loan of $4,000 is still
The bankrupt testifies that his failure was due to the losses of
a firm of which he was a member, and that but for that connection,
he would still be in prosperous circumstances.
We think the payment of the $3,000 to extinguish the ground rent
was honestly made, and was warranted by the condition at that time
of the bankrupt's affairs. They were then prosperous, and he had no
reason to anticipate the reverses which followed. If there could
otherwise be any doubt as to the integrity of this transaction, it
is removed by the loan and mortgage and the application of the
money borrowed. If there had been a purpose to defraud when the
property was bought or the ground rent extinguished, the mortgage
would not have been given. It is entirely inconsistent with such an
idea. The loan replaced the amount paid for the ground rent with an
excess of $1,000, and it equaled the amount paid for both the
property originally and in extinguishment of the ground rent, less
We hold the transactions both as to the ground rent and the
original purchase to have been honest and valid.
Where money has been misappropriated, the general rule of equity
is that those wronged may pursue it as far as it can be traced, and
may elect to take the property in which it has been invested or to
recover the money. Piatt v.
3 How. 401.
Lord Ellenborough held that the same rule is applicable at law.
Taylor v. Plummer,
3 M. & S. 562.
It was claimed by the counsel for the appellants that if the
transactions here in question should be adjudged fraudulent, the
assignee would only have a lien upon the premises for the amount to
which it might be held he was entitled with interest.
The conclusions at which we have arrived upon the facts render
it unnecessary to consider the law of the remedy.
Decree reversed and cause remanded with directions to
dismiss the bill.