text:
    The Bank Commissioners vs. The Bank of Buffalo. The same vs. the City Bank of Buffalo. The same vs. the Commercial Bank of Buffalo.
    Where a bank, by its authorized agents or officers, makes loans and discounts to its directors, or any of them, or upon paper upon which they are responsible, to an ¿mount exceeding in the aggregate one third of the capital of the bank, it is such a violation of the statute as will authorize the court of chancery to grant an injunction and appoint a receiver to wind up the affairs of the corporation and "to decree its dissolution. The same as to any other violation of any of the provisions of the first section of the title of the revised statutes relative to monied corporations.
    Loans and discounts made by the officers of a bank from its corporate funds will be presumed to have been made by authority of the board of directors, unless it is shown that the funds of the bank have been misapplied by such officers so as to render such officers liable for fraud and embezzlement. And where an officer of the bank has been guilty of fraud, by violating the charter of the company, against the positive instructions of the directors, or otherwise, if the directors neglect to remove such officer and continue to intrust him with the funds of the corporation^ they will be considered as sanctioning the fraudulent act.
    It is the duty of the officers of a bank to keep proper accounts of all loans and discounts to directors or for their use, or upon notes or securities upon which directors of the bank are responsible. And a neglect of the officers or directors of the bank to inform themselves as to the amount of such loans and discounts and responsibilities will not excuse a violation of the law on the subject.
    Where the board of directors authorize their president or cashier or any • other officer of the bank to make loans and discounts in his discretion, without having the same passed upon formally at a meeting of the board, the corporation is liable for a violation of its charter, or of any law binding on the corporation, in the making of such loans or discounts.
    If a loan or discount is knowingly made for the benefit of a director of a bank or of a firm with which he is connected in interest, or as a co-partner, it is a loan or discount to such direetpr, within the intent and meaning of the statutory provision limiting the amount of loans and discounts to directors of banks.

      The refusal by a bank to pay one of its drafts which had been protested for non-payment, and a continuance of banking business for more than ten days after a demand of payment without paying such draft withir/ that time, is a violation of the charter which will authorize a dissolution of the corporation, although the officers of the bank supposed the president, who was then absent for that purpose, would be able to make an arrangement for the payment of the draft.
    But where the officers of a bank refuse to pay an evidence of debt which they have probable cause to believe is not due from the bank, a continuance of banking business beyond the ten days thereafter will not subject the corporation to a loss of its charter, although it afterwards appears that the officers of the bank were mistaken, and that the debt was actually due from the bank at the time of such demand.

      ít seems, however, that a mistake of the officers of the bank as to the existence "of the debt will not excuse the corporation from the payment of extra interest allowed by its charter for the non-payment of a debt after demand of payment.
    One bankisnot authorized to borrow the bills of another bank for the purposes of circulation, upon the security of a deposit of its own bills, under an agreement that the former shall furnish funds to the latter, from time to time, to-redeem the bills borrowed as they shall be returned to the lending bank for payment.
    it is improper, and a violation of duty on the part of the directors of a bank, to give to any of its officers an unlimited discretion to discount, or to maker loans of the funds of the institution- without the previous sanction of the board of directors.
    Upon an application By the bank commissioners for an injunction against ® bank which has bfecomeinsolvent or has forfeited its charter, it is not necessary for them to state in their petition that all the commissioners met and consulted together as to the propriety of making such application. It is sufficient if the petition is presented in the names of all'the commissioners By their solicitor.
    Where a suit is commenced in the names of several persons by their Solicitor,the court will not inquire whether such suit was authorized by all, uhlesssome of them- object to the proceedings, or the adverse party shows affirmatively that the suit is commenced and carried on in the names of some of the parties without authority.
    Upon an application to appoint a receiver of the property and effects of abank which has violated its charter, the chancellor, in his discretion and with the consent of the bank commissioners by whom the application is made, may" dissolve the temporary injunction which has been issued and permit the bank to resume its business, if he is satisfied of the solvency of the institution and the integrity of its officers, and that its business may be resumed and continued without injury to the public and with safety to its creditors- and stockholders.
    Whether the court can exercise such a discretionary power, without the consent of the bank commissioners, where the fact of a violation of the ehartei of the bank is established ? Querré.

      1837. June 23.
    These cases came before the court upon the petitions of the bank commissioners for injunctions, and for the appointment of receivers of the property and effects of the defendants, under the provisions of the 18th section of the safety fund act and of the article of the revised statutes relative to proceedings against corporations in equity. One specific ground of complaint stated in the petition against each corporation was, that the bank had violated its charter and subjected itself to this proceeding by making loans and discounts to its directors, to an amount exceeding one third of its capital stock. The City Bank was also charged with having continued its banking business without permission of the chancellor after it had neglected to pay a protested draft of ten thousand dollars drawn by the bank, and which had been presented at the banking house and payment thereof demanded. Another charge against the Commercial Bank was that it had received from the Bank of Lyons bills of the latter institution in exchange for its own bills. Upon the presenting of the petitions, verified by the oath of the state commissioner and signed by him as solicitor for all the bank commissioners, a temporary injunction was granted to restrain the several banks and their officers from doing any banking business except to receive payment in specie or in the bills of the safety fund banks of this state which were in good credit; and the defendants were ordered to show cause why the injunctions should not be made perpetual, and why receivers should not be appointed to receive the property and effects of the several banks and to settle and close up their concerns. On the part of the Bank of Buffalo it was not denied that the loans and discounts to its directors, and upon paper on which they were responsible, exceeded the one third of the capital of the bank. But it appeared from the affidavits produced that the fact of such excess was not known to the directors and cashier, although the fact appeared upon the books of the bank, until the time when the bank commissioner called upon the cashier for a statement of the loans and discounts to and liabilities of the directors. The fact that the loans and discounts of the City Bank to its directors exceeded the amount allowed by law did not appear upon the books of the bank; as the name of one of the directors, for whose benefit and that óf his co-partner in business, drafts to the amount of $29,000 had been discounted or received in payment for an acceptance of the firm in favor of the Morris Canal Company, which acceptance had been sent to the City Bank of Buffalo for collection, did not appear upon such drafts—the same having been drawn in the name of the copartner only, other persons having promised to furnish funds to take up this acceptance of the firm. The fact of the continuance of banking operations after the $10,000 draft had been presented and the bank had neglected to pay it for more than ten days was not denied. But it appeared that the president of the bank had made arrangements from which he had reason to believe he would obtain the necessary funds to pay it within the ten days ; which arrangements finally failed, and he neglected to communicate the fact of such failure to the cashier and other officers of the bank in time to prevent them from continuing their banking operations beyond the time allowed by law for that purpose. The Commercial Bank had not in fact made loans arid discounts to directors, who were in office at the time of the examination by the bank commissioners, beyond the amount of one third of its capital; as it appeared from the affidavits produced on the part of the bank that the amount of such loans and discounts furnished to the bank commissioner at the time of his examination of the bank was erroneous in charging a loan upon paper, on which one director was drawer and another an endorser, as a separate debt to each. It also appeared that one of the directors who was indebted to the bank to a considerable amount had resigned his situation of director previous to the time of such examination; and there was no evidence that at the time of his resignation the loans and discounts made to directors or for their benefit exceeded the amount allowed by law. The fact that the Commercial Bank had received $10,000 in the bills of the Bank of Lyons, and had deposited $20,000 of its own bills in the latter bank in exchange therefor, which had been subsequently used by the Bank of Lyons, was not denied. But it appeared from the affidavit of the president and cashier of the Commercial Bank, that by an arrangement with the customers of that bank it was agreed that deposits made in such bank might be paid in the bills of any of the safety fund banks; and the bank then applied to the Bank of Lyons for a temporary loan of $20,000 in the bills of the latter bank, agreeing to furnish the means to redeem such bills when they should return to the Lyons Bank. And in pursuance of that arrangement, the Commercial Bank received from the Bank of Lyons $10,000 in bills of the latter, and deposited $20,000 in its own bills as security; which last mentioned bills were afterwards redeemed by the Commercial Bank in specie from the agent of one of the Albany banks.
    The bank commissioners insisted that each of the banks had violated the provisions of its act of incorporation and the laws of this state which were binding upon such banks, but expressed a willingness, in reference to the peculiar situation in which the commercial business of Buffalo would be placed if all their banking facilities were destroyed, that the banks should be permitted to resume banking business under such restrictions and regulations as the court might prescribe, if the chancellor in his discretion should be of opinion that they could do so with safety to their creditors and stockholders and to the interests of the public. On the part of the banks it was insisted that they had done no act which would authorize this proceeding against them to wind up their concerns and deprive the corporators of their banking privileges; and also that it should have appeared from the petitions that all the bank commissioners had met together and consulted as to the propriety of these proceedings before the petitions were presented.

      C. Stebbins & G. R. Davis, for the petitioners.

      M. Fillmore & W. A. Moseley, for the Bank of Buffalo.

      S. Stevens & G. P. Barker, for the City Bank.

      M. T. Reynolds & S. Beardsley, for the Commercial Bank.
   The Chancellor.

It is not denied by the counsel for the Bank of Buffalo that there has, as to that bank, been an actual violation of the provision of the revised statutes which prohibits the directors of a monied corporation from making loans or discounts to the directors of the corporation, or upon paper on which they or any of them are responsible, to an amount exceeding in the aggregate one third of the capital stock of the company. (1 R. S. 590, § 1, sub. 9.) It is insisted, however, in behalf of all these banks, that this is not such a violation by the corporation of its act of incorporation as will authorize the bank commissioners to apply to the chancellor for an injunction against the corporation and its officers to restrain them from exercising their corporate privileges, and for the appointment of a receiver to wind up the affairs of the company, in pursuance of the directions contained in the eighteenth section of the safety fund act. This objection proceeds upon the supposition that the restrictions contained in the several subdivisions of the first section of the title of the revised statutes relative to monied corporations are only binding upon the directors of the company as individuals, and not restrictions upon the corporation itself. In this, however, I am fully satisfied the counsel for the defendants are wrong. The object of the legislature was to prevent the corporation from doing any of the acts prohibited in this section of the statute. And the term directors is used for the corporation itself, or as the board or body exercising the corporate franchises, by whom or under whose direction or authority alone these violations of the statute could ever occur. The 33d section of the act incorporating the Bank of Buffalo, (Laws of 1831, p. 81,) and the corresponding section in the charters of the other two companies, in terms, make these provisions of the revised statutes and all provisions contained in the same chapter, except such as have been repealed or modified, applicable to the corporations of the several Buffalo Banks, as if they were actually contained in their acts of incorporation. The restriction upon the amount of loans and discounts to the directors, or upon their security, is therefore a provision of the acts of incorporation of these several companies, within the intent and meaning of the 39th section of the article of the revised statutes relative to proceedings against corporations in equity, (2 R. S. 463;) the violation of which by the company or its authorized officers will authorize a proceeding against the company in this court by injunction, and the appointment of a receiver of the effects of the corporation. The statute does not in terms authorize this court, upon such a suit instituted here, to decree a formal dissolution of the corporation. But by an examination of the 44th section of this article relating to proceedings against corporations in equity, it will be perceived that the legislature contemplated the making of a final decree on the bill or petition against the company, which was to deprive it of all its corporate property and powers. And as the receiver who is appointed upon such a proceeding, unless restricted in his powers by the order for his appointment, is absolutely vested with all the corporate property and effects, and is authorized to distribute the surplus thereof among the stockholders after paymént of the debts of the company, it follows of course that a final order or decree for the appoinment of such receiver is a virtual dissolution of the corporation, (See 2 R. S. 464, § 41, 42, 44; Idem, 469, § 68, and 471, § 83.) I have no doubt, therefore, that this court has the jurisdiction and power to decree such a dissolution of either of these companies whose board of directors has violated' the provisions of their charter restricting the amount of loans or discounts to directors, or has authorized or permitted the officers of the bank to violate the same.

All loans and discounts made by the officers of the company from its corporate funds must be presumed to have been made by the authority of the directors, unless they show that the funds of the bank constituting such loans have been improperly appropriated for that purpose, against the instructions of the board of directors or without authority, so as to make the officers guilty of a fraud or embezzlement. And even where the officers of the bank have been guilty of a fraud by violating the charter against the positive instructions of the directors or otherwise, if the directors neglect to remove such officers and continue to entrust them" with the bank funds, they will be considered as sanctioning the fraudulent act.

A neglect by the officers of the corporation to inform themselves of the amount- already loaned to directors, cannot justify a violation of a positive law of the state which it is their duty to know and conform to. If the board of directors authorize or allow their president or cashier, or any other officer of the bank to make loans or discounts in his own discretion, without having the same formally passed upon at a regular meeting of the board, the corporation is liable for a violation of its charter, or of any law binding on such corporation, in the making of such loans or discounts.

The objection that it does not appear from the' petitions that all the bank commissioners met together and consulted as to the propriety of making the applications before' the petitions were presented, is not well founded. The petitions are presented in the names of all the commissioners, by one of them as solicitor for the whole. Where several persons join in a suit in this court by their solicitor, the. court will not inquire whether the same is authorized by such parties,- unless some of them object to the proceeding, or the adverse party shows affirmatively that the suit has been imy properly instituted by some of the complainants or petitioners in the names of the others without authority. In' the-case of Bronson v. Mann, (13 John. Rep. 460,) the supreme court held that where a legal proceeding was- to be instituted' by the commissioners of highways as such, it was not necessary that they should all meet or consult and agree to make the application in order to render the institution of such proceeding valid. In the present case the statute expressly authorizes the bank commissioners or any or either of them to make the inspection and examination for the purpose of ascertaining whether any bank has violated its' charter, or any other law of the state binding, on the corporation ; and if upon such- examination- or otherwise, such commissioners shall discover any. such violation, they should immediately apply to the chancellor for an injunction. The? statute evidently contemplates a very summary remedy for the abuse of chartered privileges, and to protect the rights of those who are interested in the funds of the bank, either as creditors or stockholders ; to whom great injury might result if it was absolutely necessary to assemble all the commissioners from distant parts of the state to consult together before any application could be made to the court for relief. The section of the revised statutes relied upon by the counsel for the banks, (2 R. S. 555, § 27,) is not a restriction upon the powers of public officers, trustees and others; but was intended to enlarge the powers of a majority, so as to give them a right to exercise a power in some cases in which it would have been necessaiy, if this statutory provision had not been adopted, to have obtained the concurrence of the whole to exercise the power.

The fact that the officers of the bank proceeded to make additional loans or discounts to directors or upon paper upon which they were responsible without taking the proper precautions to ascertain whether such additional loans or discounts would not exceed the legal limit, cannot exempt the corporation from liability to be proceeded against for a violation of the provisions of its charter. It is the duty of the officers of a bank to keep a proper account of loans or discounts for the benefit of the directors, either as individuals or w'here they are concerned with others as partners or otherwise, and of the paper discounted upon which they are answerable a§ endorsers, &c. And the power of making loans or discounts to directors or for their benefit should only be entrusted to the board of directors at one its regular meetings, unless it be for a very limited amount, Neither should the board of directors authorize or permit the financial officers of the bank to make loans or discounts to any person beyond a certain limited amount, or whereby the liabilities of any individual or company would exceed such amount. Indeed no individual partnership firm, whether in the direction or otherwise, whatever may be the extent of his or their business and supposed responsibility, should be allowed to absorb the whole or a very large amount of the loans or discounts of the institution even with the immediate sanction of the board of directors. Such management by those who are entrusted with the control of the affairs of the institution is inconsistent with the objects for which its charter was granted. It is also inconsistent with the duties of the directors of the bank to its own stockholders; as it necessarily cripples the means of the institution and endangers its safety by the failure of a single individual or copartnership firm. And I have no doubt that the embarrassments under which these Búllalo banks and many others in the state have labored since the commencement of our present commercial difficulties may be attributed, in a great measure, to a disregard of the correct principles of banking and the unlimited control which a very few .persons have been permitted to exercise over the loans and discounts of the banks with which they are connected.

In the case of the City Bank, although the books of the institution do not show an excess of loans and discounts to directors beyond the amount allowed by law, I am satisfied that the charter has been violated in this respect. If a loan or discount is knowingly made for the benefit of a director, or of a firm with which he is connected in interest or as a copartner, it is a loan or discount to him, within the intent and meaning of the legislature, although the name of the director of this firm does not appear upon the discounted paper, or he does not guaranty the payment of the loan. And the bank cannot by making the discount or loan nominally to another person evade this provision of the statute, so as to save itself from the consequences of such a violation of the charter. And this court will not suffer a salutary restriction of this kind to be evaded by any device whatever, if the substance of the act complained of is precisely that which the legislature intended to prohibit. In the present case the draft of $39,000, which was taken by the bank from Smith, in payment of the acceptance of Smith & Macy, which had been sent to the bank for collection and had then become due, was clearly a loan for the benefit of that firm to enable them to meet and take up their acceptance, although, other persons had promised to see it paid when it became due. And the court cannot shut its eyes to the obvious fact that the draft on Hicks & Co. was made in the name of Smith alone, instead of the names of the firm, upon the mistaken supposition that the discount of such a draft would not be a violation of this provision of the charter, as a discount to Macy who was a director in the bank. If Smith & Macy had been in no way connected with this institution, no one can reasonably suppose that the officers of the bank would have taken this draft of the individual partner for such a large amount, instead of the security of the firm, in payment of a demand sent there for collection by another institution.

The continuance of the business of this bank, after it had neglected for more than ten days to pay the draft of SI0,000 which had been demanded at the banking house, was also a violation of the charter which authorized the bank commissioners to institute these proceedings. A mere, refusal to pay a note or bill or other evidence of debt issued by a bank, where the officers of the institution had probable cause for believing that the bank did not owe the debt and therefore was not bound to pay it, would not subject the institution to a loss of its charter; although it should after-wards be ascertained that the debt was legally due. In such a case, however, the holder of the bill or draft would probably be entitled to his ten per cent damages, in lieu of interest, until payment was actually made according to the provisions of the 31st section of the act of incorporation. Here there was no doubt as to the liability of the bank to pay the draft which it had issued for the redemption of its bills. But the cashier neglected to pay it when demanded upon the erroneous information that the president had made arrangements by which it would be paid elsewhere. The statute however is imperative; and the officers of the institution went on at their peril after the expiration of the ten days, without informing themselves of the fact that it was not paid. But the situation of the commercial community at that time, and the notorious fact that all the other banks in the state suspended specie payments within a few days thereafter, the necessity and propriety of which was acknowledged and sanctioned by a legislative act, would of it" self render it improper for the bank commissioners to enforce the penalty against this institution for that cause alone, if it can now proceed with its banking operations with safety to the public, and can obtain authority from the chancellor for that purpose in conformity to the 30th section of its act of incorporation.

It is admitted by the bank commissioners that they were misled and acted under a mistake in supposing that the Commercial Bank at the time of the examination had loaned or discounted to its directors more than the amount authorized by the statute. But it is insisted that this bank has been guilty of a violation of its charter in receiving from the Bank of Lyons the bills of that institution in exchange for its own bills. And I agree with the bank commissioners that it appears from the statement of this transaction, as made by the president and cashier, that it was not only contrary to the correct principles of banking as authorized by the laws of this state, but also a violation of that provision of the revised statutes which prohibits a bank from receiving the bills of another monied corporation in exchange for its own. It is avowed by the officers of the Commercial Bank that their object in obtaining the bills of the Bank of Lyons was to pay them out for deposits in lieu of their own bills which they would be compelled to redeem in specie. The effect of this arrangement would therefore be to substitute a circulating medium in the neighborhood of the Commercial Bank which was not payable in specie there but at a distance, in lieu of its own bills which, if issued, could be immediately converted into specie at the will of the holders thereof. This was probably one of the principal evils which the legislature intended to guard against in prohibiting a monied corporation from receiving from another the notes or bills of the latter in exchange for its own. The Commercial Bank received these bills of the Bank of Lyons in exchange for its own, even if there was an express agreement on the part of the Bank of Lyons that they would not use the Commercial bills until after notice that its own bills had come back and been redeemed, and a neglect on the part of the Commercial Bank to furnish funds to meet them. It is very evident, however, that such was not the agreement in this case. And the officers of the Bank of Lyons were not probably guilty of an act of bad faith towards the other institution, although the operation intended to be effected by both parties did not succeed, as to one at least, in the manner contemplated. The president and cashier, however, both swear that they had no intention of violating the provisions of the statute, and they probably acted without legal advice and perhaps without knowing or adverting to the statutory provision on this subject.

Upon the whole, I conclude that all three of the Buffalo banks have violated their charters in such a manner as would authorize this court to grant a perpetual injunction against the further exercise of their corporate franchises^ and to place their property and effects in the hands of receivers to wind up the institutions.

Considering the peculiar situation of the monied institutions and affairs of the state and of the union at the time when the acts complained of occurred, and the great injury which the commerce of the west, and of the city of Buffalo in particular, would sustain if all- the banks in that place should be destroyed, and all the debts now due to them should be immediately called in by forced collections, I think the bank commissioners have very properly submitted the question to the discretion of the court to say whether the banks should be allowed to resume their banking operations, if the chancellor is satisfied from the exhibition of the statements of their concerns and the responsibility of their debtors and the integrity of those who now compose their several boards of directors, that they can be allowed to proceed with safety to their creditors and stockholders and without injury to the public interests of the state ; and subject to such regulations and restrictions as may be proper during the continuance of the suspension of specie payments by the banks generally.

In the exercise of that discretion, therefore, and believing it will advance the interests of the public as well as of the creditors and stockholders of these banks, I shall dissolve the injunctions and permit them to resume their business; subject’ however, to the following restrictions and regulations ; with liberty to the bank commissioners to make an ex parte application for a restoration of the injunction against any of such banks, upon an affidavit that such regulations have not been complied with; and for further proceedings upon the present petition to appoint a receiver to wind up its concerns:

1. Those banks which have made loans or discounts to or for the benefit of their directors, or upon paper upon which they or any of them are responsible, beyond the amount allowed by law, shall within thirty days call in or reduce the amount within the required limits. And the several banks shall within the same period satisfy the costs of these proceedings, and pay or secure to the satisfaction of the comptroller the bills redeemed by him out of the safety fund, or on account of that fund, under the act of May last, and before any new bills of the banks shall be issued or new debts contracted by such banks.

2. That during the time of the suspension of specie payments, these banks shall not make any loans or discounts to or for the benefit of a director or of his partner in business, either directly or indirectly, whereby the whole amount of loans and discounts made to or for the benefit of such director and his co-partners, or any of them, either jointly or severally, and remaining unpaid, shall at any time exceed one thirteenth of the capital of the bank ; that no loan or discount shall be made to any person for a longer time than three months exclusive of the days of grace ; nor shall any renewal be for a longer period; that no loan or discount shall be made to or for the benefit of any individual or company, beyond the amount of $5000, except it be under the immediate direction of a majority of the directors at a regular meeting of the board, or any loan or discount whereby the amount due from the person to whom or for whose benefit the same is made, or from him and his partners in business, either jointly or severally, shall exceed $5000; that no loan or discount whatever shall be made to any director, or any person or persons connected with him in business, or to any person for his or their benefit, unless it be made under the immediate direction of a majority of the directors at a regular meeting of the board; that no individual or company shall be permitted to overdraw his or their account with the bank ; that no loan or discount shall be made to any person or for his use or benefit to enable him to purchase or pay for any shares of the stock of the bank; and that no loan or discount shall be made to or for the benefit of any person or firm who does not endorse or guaranty the payment of the notes or securities given for such loan or discount.

3. That during the time of the suspension of specie payments, these banks shall conform to such other regulations and restrictions as the bank commissioners, or any two of them, may from time to time prescribe, with a view to the safety of the public, or to ensure the proper management of the affairs of the institution.


source: Caselaw Access Project

author: The Chancellor.

license: Public Domain

text:
    New-York Fire Insurance Company vs. Lawrence and wife.
    1837. July 4.

    Where a part of the exceptions to an answer are allowed and a part disallowed, if the complainant excepts to the master’s report as to the disallowance of a part of his exceptions, he must wait until his exceptions to the master’s report are finally disposed of by the court before he will be entitled to an order for the defendant to answer the exceptions which were allowed by the master. And the entry of a common order to answer the exceptions allowed before the entering of the order of the court on the exceptions to the master’s report is irregular.
    The proper course in such a case, if the exceptions to the master’s report are overruled by the court, is to enter the special order m conformity to the decision of the court, and to make it a part of the same order that the defendant put in a further answer to the exceptions which were allowed by the master; or the complainant may have a common order to answer the exceptions allowed, after the report has become absolute by the entry of the special order overruling his exceptions to the same.
    This was an appeal from a decision of the vice chancelior of the first circuit setting aside the complainant’s proceedings to take the bill as confessed, for irregularity. Five exceptions having been filed to the answer of the defendants, they submitted to the same and put in a further answer. The complainant’s solicitor deeming the further answer insufficient as to four of the exceptions, referred the answer upon those exceptions. The master reported the answers insufficient in the matters of the two first exceptions and that it was sufficient in the matters of the third and fiitii exceptions. Notice of filing the report was duly served on the defendant’s solicitor. The complainant excepted to so much of the report as adjudged the answer to be sufficient in the matter of the two last mentioned exceptions. Upon a hearing before the vice chancellor the decision of the master was declared to be correct, and the exceptions to his report were disallowed. But the complainant’s solicitor instead of entering the usual order upon the vice chancellor’s decision, overruling the exceptions and confirming the report, and requiring the defendants to put in a further answer to the two first exceptions within the time allowed by the master, entered a common order for the defendants to answer those exceptions ; leaving the exceptions to the report undisposed of on the records of the court, and proceeded to take the bill as confessed for the want of such further answer.

      S. F. Cowdrey, for the complainant.

      C. W. Sandford, for the defendants.
   The Chancellor.

The common order entered by the complainant’s solicitor to answer the two first exceptions was irregular. The report having been excepted to by the complainant’s solicitor it did not become absolute under the 56th rule, until those exceptions were disposed of by the order of the court. The complainant’s solicitor should therefore have drawn up the order under the decision of the vice chancellor overruling the exceptions and confirming the master’s report. And he should have made it a part of the same order that the defendant put in a further answer to the two first exceptions within the time allowed, as a separate common order to answer was not necessary? though it would not have been irregular if the special order to confirm the report had been previously entered.- Until the exceptions to the report were disposed of by the order of the court, the complainant had no more right to call for a further answer as to the two first exceptions than he had before the decision of the vice chancellor was pronounced. (2 Moll. Rep. 70. 4 Paige, 140,)

As the irregularity complained of had deprived the defendants of their defence, it was proper to open the order taking the bill as confessed, although there had been some delay in making the application.

The order appealed from must be affirmed with costs»


text:
    Wood vs. Burnham and others.
    Where the testator, who died previous to the adoption of the revised statutes, devised his estate to his executors as trustees to receive the rents and profits thereof for the use of his children for the term of six years, and then to divide the same among his children or their issue then living and to give conveyances therefor; and directed that in each deed or conveyance to any of the testator’s children there should be inserted a clause limiting the grant, or interest to be conveyed, to the grantee for life, with remainder over to thé right heirs of such grantee, their heirs and assigns forever; Held, that the executors or trustees were bound to convey the shares of the several chil* dren of the testator in such a manner as to give to the first taker an estate for life only, with remainder to such persons as might be his legal heirs at the time of his death ; according fo the provisions of the revised statutes abolishing the rule in Shelly's case.

    The rule in Shelly’s case is not applicable to the case of an executory trust, which is to be carried into effect by a conveyance from trustees of the legal estate, and where it is apparent from the will or instrument creating the trust that the testator or donor only intended to give a life estate to the first taker, and that the heirs of such first taker should have the remainder in fee as purchasers. And in such a case the court of chancery will direct such a conveyance to be made as will most effectually carry the testator’s intention into effect, so far as it can be done consistent with legal rules.
    It seems a trustee is not botfnd to appeal froto a decision against the rights claimed by him in favor of his cestui que trust who is not a party to the suit. But where the decision of the court below is in favor of such cestui que trust whose interest is represented by the trustee, if the adverse party appeals from the decree, it is the duty of such trustee to endeavor to sustain the decision of the court below upon the hearing of the appeal.

      1837. July 4.
    This case came before the chancellor upon the appeal of the complainant, and also upon the appeal of Seneca Wood and two of the other children of Walter Wood deceased, from so much 0f the decree of the vice chancellor of the seventh circuit as adjudged and declared that the children of the testator who were living at the time appointed for the division of his residuary estate only took estates for life in their respective shares thereof; and that the remainders in fee, upon the termination of such estates for life, would belong to such persons as, at the death of the first takers, respectively answer the description of their heirs at law. The defendant Isaac Wood also gave notice of an appeal from the whole decree of the vice chancellor; but as no appeal bond was filed by him, and he having also neglected to appear upon the hearing to argue his appeal, that appeal was dismissed with costs. The other appeals which were argued and submitted upon written briefs on the part of the appellants and of the guardian ad litem of the infant defend» ant, both depended upon the construction of the executory clause in that part of the testator’s will in which he devised his residuary estate, real as well as personal, to his executors or such of them as should make probate of the will, in fee, upon the trust therein declared. The trust declared by the will, as to this residuary estate, was, among other things, to receive the rents, profits and income thereof for the first six years after the testator’s death, and divide the same among his children and the issue of such of them as should have died leaving issue,per stirpes, and upon the further trust, at the expiration of the six years, to convert the personal estate, and the real estate which had been sold, into stocks and thereupon to divide such stocks and the real estate remaining unsold into so many shares as there should be children of the testator then alive and as should have died leaving lawful issue then living. And after having made such division, the executors or trustees were directed fo convey by a fit and competent deed or instrument in writing, one share to each of the surviving children and one other share to the lawful issue of each child so deceased leaving issue then living. This executory clause then concluded as follows: “ And in each deed or writing executed to any of my children shall be inserted and expressed a clause limiting such grant or interest conveyed to the grantee for life, with remainder over to the right heirs of such grantee, their heirs and assigns forever.”

    The testator died previous to the adoption of the provision of the revised statutes by which the rule in Shelly’s case was abrogated, or abolished, leaving ten children him surviving. The time appointed for the division of the estate, however, did not arrive until after the revised statutes went into operation ; so that a deed executed at that time in the form prescribed by the testator in the will would clearly vest a life estate in the child to whom it was given; and would be a valid limitation of the remainder in fee to the heirs of such child after the termination of the life estate. (1 R. S. 725, § 28.) Mrs. Burnham, one of the daughters of the testator, died within the six years, leaving three children, one of whom died without issue before the expiration of the time appointed for the division. All the other children of the testator were living at the time of the commencement of this suit, and are still alive ; and all of them except one were married and had issue.
    A. Worden & F. G. Jewett, for the appellants.

      P. Bronson, for the infant respondent.
   The Chancellor.

As the defendant Burnham, who made the objection in his answer that the presumptive heirs at law of the surviving children were not made parties, has not appealed from that part of the decree which relates to that subject, and has not appeared to argue the case on this appeal, it is not necessary to examine the question here whether he had a right to insist that they should be made parties, for his benefit and protection against any future litigation with them.

The infant son of Mrs. Burnham, who is one of the presumptive heirs of his uncle J. M. Wood, is the only party who has appeared on these appeals that has any interest adverse to that of the appellants; and even as to him the case is submitted by his guardian ad litem without any argument in favor of this part of the vice chancellor’s decree in which the infant has an apparent interest. In a case -of this importance, involving the contingent right of the infant defendant, and the rights of numerous other persons who are not before the court, it is to be regretted that the court is compelled to decide the cause without the benefit of an answer to the able and elaborate arguments which have been presented on the part of the appellants. In justice to the guardian ad litem of the infant -defendant, however, it is proper to say, that from the written brief presented by him upon another question, it is evident that he has acted upon the erroneous supposition that the infant had no interest in the question as to the validity of the limitations over to the heirs of his uncles and aunts, without adverting to the fact that by the death of either without leaving issue then living, the children or issue of Mrs. Burnham would - constitute a part of such heirs. It was clearly the duty of Burnham, however, as the only one of the acting executors who had not a common interest with the appellants, to have employed counsel at the expense of the estate to sustain, if possible, ■ the decision of the vice chancellor, and-thus to protect the rights of the unknown parties who may be the heirs at law of such of the children as are now living. Where the decision of the court below is against the rights of unknown parties whose contingent interests are represented by a trustee, it may not be the duty of such trustee to appeal from the decision in order to protect himself from future responsibility. But where the decision of the court below is in favor of the rights of such unknown parties, it is unquestionably the duty of the trustee to endeavor to sustain such decision in the appellate court. It is no' fault of the appellants, however, that they have been obliged to argue their appeals ex parte, and that the court is to decide them without the benefit of an argument on the other side. I shall therefore proceed to dispose of the questions arising on these appeals, according to what I conceive to be the law of the case, from ■ the best lights I have been able to obtain from such an argument and my. own examination.

The vested rights of the appellants, whatever they were under the will at the time of the adoption of the revised statutes, could not be divested by the abrogation of the rule in Shelly’s case. And as the execution of deeds to the children in the terms of the will would, under the existing law, only give to them life estates in their several shares, if this court can legally be satisfied that it was the intention of the testator to give them the fee, or if such is the legal construction of the will, the deeds to be given by the trustees must be so modified in their language as to carry into effect such intent of the testator. In deciding upon the question, therefore, as to what estates in their several shares these appellants are entitled to under the will of their father, I lay out of view the fact that this principle of law, commonly known as the rule in Shelly’s case, which had been such a fruitful source of litigation both in this country and in England for more than two hundred and fifty years, was finally abrogated in this state before the expiration of the six years, which was the time fixed by the testator for the distribution of his residuary estate among his children or their descendants. For this reason it is not necessary that I should resort to those ample stores of legal learning, the anticipated destruction of which, by the abrogation of this anomalous and perplexing rule, has called forth the sad lament of the learned and venerable commentator on American law, the brilliant rays of whose own setting sun have reflected much of the “ gladsome light of jurisprudence” upon his country and upon the world. (See 4 Kent’s Comm. 233, note a.)

The technical rule of law, that where a person either by deed or will takes a legal or equitable freehold estate, and in the same deed or will an estate of the same quality is limited as a remainder in fee to the heirs general or the heirs of the body of the grantee or devisee, the word heirs is a word of limitation merely, so as to vest a fee in the first taker, or an estate tail which is turned into a fee simple by the statute, was unquestionably the law of this state previous to the first of January, 1830, when the revised statutes went into operation. (Brant v. Gelston, 2 John. Ca. 384.) And from the view which I have taken of another question in this case,it is not necessary for me to inquire whether superadded words showing a manifest intention of the grantor or testator that the general heirs or heirs of the body of the first taker should take as purchasers, in the mere character of heirs, would be sufficient to take a legal estate or a vested equitable estate under an executed trust out of the operation of the rule.

The devise to the executors in this case being an executory and not an executed trust, or, in the language of one of the English chancellorsjkhe testator having directed his executors to make conveyances of the estate to the cestuis que trust instead of being his own conveyancer by vesting either a legal or equitable estate in his children and their heirs directly, it forms an exception to the rule in Shelly’s case. /And this court will direct the conveyances to be made in such a manner as to carry into effect the intention of the testator, notwithstanding the existence of the rule. This distinction between executed and executory trusts was recognized and acted upon in the case of Leonard v. The Earl of Sussex, as early as 1705, (2 Vernon, 526 ;) where the court decreed that the conveyance which the trustees were by the will directed to give, should be made in such a manner as to carry into effect the intention of the testatrix, although the execution of a conveyance in the words of the will would have vested an estate tail in the first takers. The distinction was recognized five years afterwards by the house of lords in the case of Sergeant Maynard’s will; in which case the court directed a limitation of a term to trustees to preserve contingent remaindérs to be inserted in a conveyance under the will to carry into effect the supposed intention of the testator, although no such direction was contained in the will itself. (1 Bro. P. C., Tom. ed. 31.) The same distinction with particular reference to the rule in Shelly’s case was acted upon in 1728 by Lord Chancellor King, in Papillon v. Voice, (2 P. Wms. Rep. 471.) In^that case a direct devise of lands to B. for life with remainder to trustees to preserve contingent remainders, and then over to the heirs of the, body of B., was held to create an estate tail by the operation of that rule ; but that a bequest of £10,000 to be laid out in land by the trustees and to be settled in the same manner, should be conveyed in strict settlement; so as to take it out of the operation of the rule. And this decision was directly sanctioned by Lord Talbot in the case of Lord Glenorchy v. Bossville, which came before him a few years afterwards. (Cases Temp. Talbot, 19.) In 1738, the same question came before Lord Hardwick in the cases of Roberts v. Dixwell, Sandys v. Dixwell and Pyott v. Dixwell, and was decided in the same way. In the opinion of the court in these cases, which will be found reported at length in the recent reports of Mr. West, his lordship says : “It is true that where there is a devise of a legal estate to one for life and after his decease to the heirs of his body, the first taker, according to the rule in Shelly's case takes an estate tail; and so undoubtedly it would be in the case of a trust actually executed, for then equity follows the law, and whatever estate the party would have had in case of a devise of the land he is entitled to in the case of a devise of the trust of it. But where the trusts are merely executory, and something remains to be done to perfect and carry intoj effect the testator’s intention, the court is not confined to the strict rules of common law, but governs itself by the testator’s intention, and does that which will best answer and support it.” (1 West's Rep. 542.) This, therefore, was the settled law of this court at the time of our separation from the mother country, and was the law of this state at the time of the death of the testator under whom these appellants now claim. And the current of authority in that country subsequent to the revolution is in accordance therewith. In the case of The Countess of Lincoln v. The Duke of Newcastle, (12 Vesey, 227,) Lord Eldon denies that there is any difference in the execution of an executory trust created by will and of a covenant in marriage articles. And he says that such a distraction would shake to their foundations the rules of equity. But he recognizes the distinction between a direct devise of a legal or equitable estate, as an executed use or trust by the will itself, and a covenant in the marriage articles where the issue of the marriage is the principal object of the settlement. (See also Jervoise v. The Duke of Northumberland, 1 Jack. & Walk. Rep. 550.) It is this distinction which is referred to in the several cases cited by the counsel for the appellants, in the present case, to show that the decisions which have been made upon marriage articles were not applicable to the case of a trust created by a will. I may also add that the distinction between executed and executory trusts created by will in reference to the application of the rule in Shelly’s cnse, is recognized by Fearne in his valuable treatise on contingent remainders, and by Chancellor Kent in his commentaries on American law. (Fearne, 136. 4 Kent's Comm. 2d ed. 218.)

The principle therefore must be considered as settled, that wherever there is an executory trust to be carried into effect by a conveyance from the trustees, if it is apparent from the instrument creating the trust that the testator or donor intended that the first taker should have a life estate only, and that his heirs should take the remainder in fee as purchasers, this court will direct such a conveyance to be made as will most effectually carry into effect such intention, so far as it can be done consistently with legal rules, In the present case, from an examination of the provisions of this will I think there cannot be any doubt that it was the intention of the testator that his children who should be living at the expiration of the six years should take an estate for life only in their respective shares, and that their heirs should take the remainder in fee as purchasers. It is impossible to conceive what other object the testator could have had in giving such a positive direction to his executors to insert a clause in the deed limiting the estate in terms to the Children of the testator for their respective lives.

The decision of the vice chancellor was therefore correct in declaring that the appellants and the other children who were living at the expiration of the six years were entitled only to a life estate in their respective shares. The deed should be in the form prescribed by the testator himself, which, according to the existing law, will vest such an estate in the children as the testator intended they should have, and the contingent remainders under such conveyances will ultimately go to those for whom they were unquestionably intended; that is, the real estate will go to the heirs of the first takers, according to the statute of descents, and the stocks or personal estate to the heirs who are entitled to the same under the statute of distributions.

The decision appealed from must be affirmed, and the proceedings are to be remitted to the vice chancellor.


text:
    Eddy vs. Traver and others.
    1837. July 4.
    Where real estate descended to an heir at law charged with the payment of debts due from the decedent, and such heir afterwards sold a part of the estate to another person with warranty, which part was subsequently sold under an order of the surrogate for the payment of such debts; Held, that the purchaser from the heir had an equitable lien upon the residue of the estate remaining in the hands of such heir to the extent of such purchaser’s share of the proceeds of the land sold under the order of the surrogate.
    A surety, or a party who stands in the situation of a surety, is entitled to be subrogated to all the rights and remedies of the creditor whose debt he is compelled to pay, as to any fund, lien or equity which the creditor had against any other person or property on account of such debt. And his equitable right of substitution is not lost, except as against bona fide purchasers and mortgagees, by the extinguishment of the lien of the creditor, at law, by the payment of the debt by the surety or out of his property.
    Whore a creditor has two funds to which he may resort for the satisfaction of his debt, the one of which is primarily and the other only secondarily liable for the payment thereof, the owner of the latter fund stands in the situation of a surety for the owner of the primary fund, in the application of the equitable principle of substitution in behalf of sureties.
    Where an heir has conveyed a part of the real estate descended to him leaving the debts of the decedent unpaid, it seems the surrogate may direct the lands still belonging to the heir to be first sold for the payment of such debts ; so as to protect the equitable rights of the purchaser from such heir.
    Tiie bill in this suit was filed by two of the heiis at law of G. Eddy for the partition of a part of the real estate ofwhich he died seized; and the case came before the chancellor upon an exception to the report as to incumbrances upon the undivided shares of the several tenants in common in the premises. G. Eddy died intestate previous to 1829, leaving four children and heirs, of whom Sally the wife of A. Traver was one. In April, 1829, Traver and wife conveyed to J. & G. W. Ross their undivided one fourth of a part of the real estate of which the intestate died seized, with warranty, leaving their undivided interest in the premises of which partition is sought in this case undisposed of; and G. W. Ross subsequently conveyed his interest in the purchase to J. Ross. The personal estate of the intestate being found to be insufficient for the payment of his debts, his personal representative applied to the surrogate and obtained an order for the sale of the real estate for that purpose. But instead of selling that part in which all the heirs at law still retained an interest, the administrator sold a part of the lands in which Traver and wife had conveyed their undivided share to J. & G. W. Ross ; and the proceeds thereof were applied to the payment of the intestate’s debts. As Traver and wife still owned their undivided one fourth of the premises which were subsequently decreed to be sold in this partition suit, Ross claimed to have an equitable lien upon their undivided interest therein, to remunerate him for his one fourth of the proceeds of the lands sold under the surrogate’s order; which proceeds had been applied to the payment of the debts for which Traver and wife were liable on account of the lands descended to the wife as one of the heirs at law. lie also claimed interest from the time he was divested of his title under the sale by order of the surrogate. The master disallowed this claim of Ross to an equitable lien; and the report was excepted to on that ground.

      W. Silliman, for the defendant Ross.
    The debts of the testator were in nature of a lien on all the lands descended, and should have been first paid out of the unsold lands. It is a general principle that when the property of one is taken to pay the debts of another, the person whose property is taken will be subrogated to all the rights of the creditor whose debts he has paid. The lands of Traver and wife unsold are embraced in the order of sale, and Ross should bo permitted to use that order or some other proceeding in its place equally efficacious to reimburse him the money which his property has paid, and which the property of Traver and wife unsold ought to have paid. It is a well settled rule that if lands subject to an incumbrance are sold in parcels at different times, the parcels shall be liable to the satisfaction of incumbrances in the inverse order of their alienation. (Gonnerreen v. Lynch, 2 Paige’s Rep. 300.) And if a sale takes place in a different order, the equities of the parties will still be preserved and the error corrected. If an execution issue against the property of principal and surety, the surety may apply to have the property of the principal first sold to satisfy the execution, or he may wait until his property is sold and the debt satisfied, and then use the execution to reimburse himself. In England, where lands desended are not liable for simple contract debts, those debts will be subrogated in place of bond debts paid out of personal assets, and thus be paid out of lands descended. (See Mad. Pr. 201, on marshalling and securities. Idem, 498, on marshalling assets. See also Trimmer v. Payne, 9 col. 209. Rumbold v. Rumbold, 3 Ves. 64, and cases cited in the notes. Among others, see Cheesborough v. Millard, 1 John. Ch. Rep. 415. 1 Dessaus. 409.) In Burrows v. McWhann, (1 Dessaus. 409,) the court set up and revived a judgment which had been fully paid and satisfied, and of which, satisfaction had been long entered of record in order to enable one surety to use it as a judgment against the estate of a co-surety. In that case are cited 1 Atk. 133, 5, 2 Vern. 608.

      M. Hoffman, for Traver and wife.
    It is admitted that where a surety pays a debt, the law creates a substitution, without any agreement with the creditor; but in general, payment by another person without assignment extinguishes the demand. (Samped v. McLean, 3 Paige, 117. Niemsewitch, v. Gantz, 3 Paige, 648. Cops v. Middleton, 1 Turner Russel, 231.) Again, the doctrine of substitution is not to be extended to implied liens. (Ormsby v. Tavascon, 3 Little’s Rep. 404.) But this doctrine has never been applied to the case of a party taking a conveyance of property ; bound to know the possibility of the incumbrance being enforced against it; guarding himself against that result by full covenants in his deed, and looking to these as his security and protection. Why should this party have a greater advantage here than he would have at law ? If evicted, his damages under his covenant would be the consideration money and 6 years interest. (Bennet v. Jackson, 13 John. Rep. 50. Pitcher v. Livingston, 4 John. Rep. 1.) It is impossible to reach the wife’s interest in this property. An express covenant of warranty does not bind a married woman not even by way of estoppel. (Jackson v. Vanderheyden, 17 John. Rep. 167. Martin v. Donelly, 6 Wendell, 10. Fowler v. Shearer, 7 Mass. Rep. 21.) So in chancery her agreement to convey does not bind her. (Martin v. Mitchell, 2 Jac. & Walk. 412. Atwater v. Buckingham, 5 Con. Rep. 492.) The claim of Ross has been adjudicated upon by the surrogate. He submitted to the adjudication, and cannot, therefore, now revive this question.
   The Chancellor.

Upon the facts disclosed in the master’s report, I think that the defendant Ross has an equitable lien upon the undivided interest of Traver and wife in the premises of which partition is sought in this case, to the extent of one fourth of the proceeds of the lands in which he had purchased their share, and which were sold under the surrogate’s order; and also for the interest on that amount from the time of the confirmation of the sale by the surrogate. It is an established principle of equity that sureties, or those who stand in the situation of sureties for those who pay a debt for them, are entitled to stand in the place of the creditor, or to be subrogated to all his rights as to any fund, lien or equity which he may have against any other person or property on account of the debt. And where the creditor has two funds to which he may resc-rt for the satisfaction of his debt, if he resorts to that which in equity is only secondarily liable, to the injury of one who has a claim upon the secondary fund only, or resorts to a fund belonging to a third person, which fund is only secondarily liable for the payment of the debt, the person who is the owner of or has a claim upon the fund thus taken is considered as a surety merely, and is entitled to stand in the place of the creditor as against the primary fund. (1 Strong’s Eq. 477, § 499. Idem, 588, § 633, &c.) It was upon this equitable principle that this court proceeded in the case of Clowes v. Dickinson, (5 John. Ch. Rep. 235,) in charging the payment of a judgment upon lands which had been aliened by the judgment debtor, in the inverse order of their alienation—the first purchaser in such a case standing in the situation of a mere surety for the payment of the judgment debt. In cases depending upon this equitable principle, as between the debtor and his sureties, it makes no difference, except as against bona fide purchasers or mortgagees, that the debt has been actually paid by the sureties, or out of their property, so that the creditors’ lien upon the property of the principal debtor is extinguished at law. Thus in the case of Watts v. Kinney, (3 Leigh’s Rep. 272,) where the sureties had actualy paid the debt, so that the lien of the creditor’s judgment was discharged at law, the court of appeals in Virginia decided that the sureties were in equity entitled to the benefit of the judgment, as a lien upon the land, as: against the claims of an attaching creditor. (See also Cuyler v. Ensworth, ante, 32 ; Burrows v. Wham, 1 Desaus. 409; and Sprigg v. Braman, 6 Louis. Rep. 206.).

Applying these equitable principles to the case under consideration, there is no doubt of the right of Ross to be substituted in the place of the creditors of the intestate who have been paid their debts by a sale of that part of the property which had been conveyed by Travcr and wife, instead of charging such debts upon the property which still remained unsold. If the creditors had brought their suit against the heirs for the payment of the debts of the ancestor, the real estate which remained in the hands of Travel' and wife unsold must have been applied for that purpose; and that which had been previously sold and conveyed to Ross would have been discharged. I am inclined to think the surrogate had the power to direct the sale to be made in such a manner as to protect the equitable rights of the purchasers fmm *he he-% ?t law. But whether he had such power or not, this court has jurisdiction and authority to protect all the equities of one who was standing in the situation of a mere surety for Traver and wife, so far as the debts of the ancestor remained a lien upon the lands which they had sold to him. And neither the want of such power in the surrogate, nor the neglect to exercise it if the power in fact existed, can in this case deprive the defendant Ross of his equitable claim to be substituted in the place of the creditors of the intestate as to the lien which they had, before the sale under the surrogate’s order, upon the lands of Traver and wife held by them in right of such wife as one of the heirs at law to whom such lands had descended, charged with the payment of such debts.

The exception to the master’s report was, therefore, well taken. The amount of the proceeds of the sale of Ross’ interest in the lands sold under the surrogate’s order, together with the interest thereon and his costs, must be paid out of the fund set apart by the decree for that purpose ; and the residue of that fund must be distributed according to the principles of the decree.


author: W. T. McCoun, V. C. The Chancellor.

text:
    The Bank of the United States vs. Housman and others.
    Where the grantor, after the execution of a voluntary conveyance to his sons, is permitted to retain possession of the premises as the ostensible owner and the conveyance is not recorded, such continued possession is prima facie evidence of fraud as against subsequent creditors who have given credit to the grantor upon the faith of his supposed ownership of the property.
    A voluntary conveyance is not per se fraudulent, even as against creditors to whom the grantor was indebted at the date thereof. And where there is no evidence of fraud in fact in the giving of the deed, nor any subsequent acts of the parties from which fraud can be legally inferred, subsequent creditors of the grantor cannot avoid the deed by showing that the consideration expressed therein was not the true consideration.
    In order to make a valid conveyance of land under the statute of uses, it is sufficient if any good consideration appears upon the face of the deed which willlegally raise the use in favor of the grantee. And if the real consideration of the conveyance was neither corrupt nor illegal, the grantor and those claiming under him are estopped from denying the payment of the consideration, so far as a consideration is necessary to give effect to the deed.
    1837. July 4.
    A man free from debt may execute a valid deed of gift, notfounded in fact upon either a pecuniary consideration or a consideration of blood or marriage, by inserting a nominal pecuniary consideration therein ; the actual payment of which nominal consideration the grantor, and those claiming under him, will not be permitted to disprove.
    Where the intent of the grantor to pass lands by a written conveyance is apparent, if for any reason the deed or instrument cannot operate in the way contemplated by the parties thereto, the court will if possible give it effect in some other way. A conveyance of- a future estate by lease and release, which cannot operate as a bargain and sale for want of apecuniary consideration, may operate as a valid covenant to stand seized to the use of the grantee where it appears that there was a relationship of blood existing between the grantor and grantee, which formed the real consideration of the conveyance.
    This was an appeal from a decree of the vice chancellor of the first circuit. The bill was filed by the complainants as judgment creditors of Jacob Housman to set aside three conveyances made by him to his sons ; and to compel the latter to apply the monies which they had received upon a subsequent conveyance of a part of the premises in satisfaction of the complainants’ judgments, execution upon such judgments having been returned unsatisfied. The bill charged that in November, 1824, Jacob Housman became indebted to the complainants as the drawer of a note for $3000, endorsed by the mercantile firm of J. & J. Latourette, which was discounted by the complainants for the benefit of the latter ; that the note was renewed from time to time and partial payments made thereon, until October, 1825, when the amount due was $2000 ; and a renewed note was given for that sum payable in 60 days ; that in November, 1825, another note drawn by J. Housman and endorsed by the same persons was discounted by the complainants for the latter for the sum of $2300, and payable also in 60 days. These notes not being paid when they became due, suits were commenced thereon in the supreme court of this state against J. Housman, upon which judgments were obtained in favor of the complainants in May term, 1826, for the amount of the respective notes with interest and costs ; and that writs of fieri facias were thereupon issued to the sheriffs of the county of Richmond and of the citv and county of New-York which were afterwards returned w'holly unsatisfied. The complainants further alleged that notwithstanding the return of the executions unsatisfied, J. Housman had some interest in a large real or personal estate or both which he had placed in the hands of his sons W. C. Housman and J. A. Housman, the other defendants, to keep the same beyond the reach of his creditors, although he continued to enjoy the property and to exercise acts of ownership over it; that after he became indebted to the complainants he conveyed to his sons a lot and premises at the corner of Whitehall and Front streets, and two stores and a lot of ground No. 53, Whitehall street, in the city of New-York, and 132 acres of land and the buildings thereon, in the county of Richmond, by deeds bearing date the 10th of August, 1822, with intent to hinder, delay and defraud his creditors; that the deed for the first mentioned premises purported to be for the consideration of $2000, although the same were in fact worth seven or eight thousand; that the consideration mentioned in the deed for the two stores and lot in Whitehall street was $4000, when in fact the same were worth ten or twelve thousand, and that the consideration in the deed for the lands upon Staten Island was stated to be $5000, although the premises were worth $7000. The complainants also charged in their bill that the deeds of J. Housman to his sons were not in fact executed before he became so indebted to the complainants, nor until after he was or pretended to be insolvent; that no consideration, or a very inadequate one, was paid for the property; that the deeds were not acknowledged or recorded until November, 1825, and were not delivered to the pretended grantees until about that period ; that the pretended grantor, after the date of the deeds and after he became indebted to the complainants, continued to occupy, use and enjoy the premises, and to receive the rents and profits and to exercise other acts of ownership over the same, and to hold himself out as the owner thereof; and that subsequent to the recovery of the judgments the two sons sold and conveyéd the Staten Island farm, and received about $6000 as the purchase money for the same.
    By the answers of the defendants, the indebtedness to the complainants, the recovery of the judgments and the return of the executions thereon unsatisfied were not denied. It appeared from the answer of J. Housman that the notes were executed by him for the benefit of the endorsers as mere accommodation notes and were discounted solely for their use; and he denied that he had, or was interested in any real or personal estate, except his wearing apparel, at the time of filing the complainants’ bill or at the time of putting in his answer. The defendants in their answers admitted that there was no other consideration for the deeds than that of natural love and affection. But they denied that the deeds were executed after the debts to the complainants were contracted, or with any intent to defraud creditors. On the contrary they alleged that the deeds were executed at the time they bore date, in pursuance of the dying request of the mother of the grantees who died a few days previous ; and that at the time of executing the conveyances, J. Housman was worth at least $10,000 in personal estate and was not indebted; that the deeds were actually acknowledged before a commissioner of deeds on Staten Island in October, 1822, and were kept and retained by the sons or one of them from that time ; and that the only reason they were not then recorded was because the grantees were not aware of the fact that it was necessary in order to protect their interests. The defendants admitted that J. Housman, after the date of the deed and until the spring of 1826, was allowed to continue in the occupation of the house and lot at the corner of Whitehall and Front streets, without paying rent therefor, the sons occasionally occupying the house with him, but residing principally on Staten Island. But they denied that he continued to occupy or use any other part of the property conveyed, or to receive the rents and profits thereof except occasionally as the authorized agent of his sons. The cause was heard upon pleadings and proofs before the vice chancellor, who did not express any opinion upon the question whether the giving of the deeds was bona fide with an honest intention of Settling *he property of J.Housman upon his sons or whether the deeds were executed with the intent to defeat those who might thereafter become his creditors. But the vice chancellor decided and decreed that the deeds were void because the money consideration therein expressed was not paid, so that they could not be supported as conveyances by bargain and sale; and that they could not operate as covenants to stand seized to the use of the sons on account of the real consideration of love and affection, because no such consideration appeared from the deeds themselves.
   The following opinion was delivered by the vice chancellor at the time of making his decree:

W. T. McCoun, V. C.

This case can be disposed of more satisfactorily to my own mind, upon the points of law which have been raised with respect to the force and operation of the deeds as between the father and sons, the defendants in this suit, than upon the question of fact presented by the' pleadings and proofs as to the bona tides of the transaction. That question is whether the motive on the part of the father Jacob Housman was fair and honest in settling the property upon his sons, or whether his intention-was to convey his property away and afterwards to contract debts or incur liabilities upon the strength of his ostensible ownership which he did not mean to pay. The circumstances do not placo the transaction entirely above-the reach of a suspicion of this sort; yet the deeds may have proceeded from a desire to settle the property upon his sons, without- any bad faith on his part towards those who might become his creditors. And perhaps the evidence would hardly warrant the conclusion that the deeds-were designedly and intentionally fraudulent, and therefore void as to subsequent creditors, such as the complainants-in this bill. I deem it unnecessary, 'however, to express-any decisive- opinion on this point. The deeds are confessedly voluntary, not founded on any valuable consideration.A pecuniary consideration is expressed in each of the deeds -, yet it is admitted by the defendants in their answer that nc¡ money was paid, or was ever intended to be paid by the sons for the purchase. On the contrary, it is asserted that the whole was intended as a gift of the property by the father, founded upon no consideration but that of blood or natural affection.

The objection is therefore taken, that as there was no pecuniary or valuable consideration, in fact,either paid or intended to be paid, the deeds cannot take effect as deeds of bargain and sale. And inasmuch as none other than a money consideration is expressed or alluded to in the instruments themselves, no other consideration, not even that of blood, can be averred or admitted to be proved in order to support or give effect to them as covenants to stand seized to uses which the statute of uses would execute. These objections appear to be well taken, and, in my judgment, are fatal to the deeds both in law and equity. No rule of law is better established than that a consideration in money paid, or to be paid, or of something valuable, is necessary to a deed of bargain and sale, such as the deeds in question purport to be. (3 Preston on Abs. 13, 23. Jackson v. Delancey, 4 Cowen, 427.) Here such considerations are expressed, but it is admitted the instruments in this respect speak untruly. There was no bargain and sale of the property, as no such contract was made. A conveyance for a valuable consideration in law was not intended. The parties now say that instead of a sale, a gift of the property was intended; and the sons claim under the instruments as deeds of gift. How then can the deeds be permitted to take effect as deeds of bargain and sale ? They cannot, unless the court can make a contract for the parties which they have not yet made between themselves, and do for them an act in pais which they have not done. Can the instruments then have any effect or operation as deeds of gift, or, in other words, as covenants to stand seized to uses 1 A good consideration, such as blood or marriage, is essential to this mode of conveyance, and such a consideration may be averred and proved where it exists, though it be not expressed in the deed, provided such averment and proof be not repugnant to what is expressed therein. Whenever a deed expresses one sort of consideration and nothing more, not saying for other good causes or considerations, and alluding or referring to no other than the one expressed, parol evidence of another consideration is inadmissible ; because it is contradictory of and inconsistent with the deed. (7 John. Rep. 342. 4 Cowen, 431.) The case has sometimes been put, to exemplify the law on this point, that where a deed is made from father to son founded upon natural affection, but a money consideration happens to be mentioned in the deed, and it is not said for divers other considerations, the parties are confined to the consideration expressed, and shall not be permitted to prove it was founded upon any other, and if the deed cannot take effect as a bargain and sale, it shall not as a covenant to stand seized. (Bedell’s case, 7 Coke, 40; and see 3 Mad. Rep. 363, 364.) The reasons are obvious. An appropriate consideration is indispensably necessary ; where it is pecuniary and is so expressed in the deed, and that is falsified, the deed must fail for the want of a consideration; and where evidence is inadmissible of a different consideration, by reason of its repugnancy to what is expressed, the deed equally fails for want of support. Title to lands cannot pass by parol; and however honestly the defendants in the present case may have ' intended a conveyance of the property from the father to the sons upon the consideration of natural love and affection, still, if the father has not in fact executed a deed of that description, the title remains in him. I am therefore of opinion, that inasmuch as the defendants áre precluded from shewing the good consideration which they allege for the deeds, and as from their own admissions the valuable considerations expressed in them are falsified, the deeds are effectual for no purpose whatever. The complainants, as judgment creditors of the father, are entitled to the aid of this court in removing the obstacles which these deeds have presented to the recovery of their debt out of the property upon which their judgments would otherwise operate as liens; and also to their costs of this suit.

From the decree of the vice chancellor the defendants appealed to the chancellor.

S. P. Staples, for the appellants.

J. Duer & J. L. Lawrence, for the respondents.

The Chancellor.

The first question which I shall consider in this cause is whether there is any thing in the case which can authorize a conclusion that the deeds were not intended as a bona fide settlement of the property upon the sons of the grantor, but were intended to defraud creditors. The complainants have wholly failed in establishing the allegation in their bill that these deeds were, in fact, executed after the giving of the notes upon which their judgments were recovered. The answers of the defendants, which are directly responsive to the bill in this respect, show that the deeds were given at or about the time of their date, two years previous to the discounting of the first note in November, 1824. The testimony of the subscribing witness and of the lawyer who drew the deeds and took the acknowledgment thereof as a commissioner also establish the fact beyond all possibility of doubt. The reason given in the answer why the deeds were not put on record at that time is also perfectly satisfactory. It must be borne in mind that the county of Richmond, where the grantees live, was not made a recording county until July, 1823 ; and it is therefore not at all improbable that they were not apprised of the fact that it was necessary to have the deeds of the lots in New-York recorded in order to protect their title against the claims of subsequent purchasers and mortgagees. The giving of the mortgage to Hone and Anthon is explained in the answer, and the allegations of the defendants in relation thereto are fully proved by the testimony of one of the witnesses. Some suspicion is thrown upon the transaction from the fact that the father was permitted to mortgage this lot in his own name without disclosing the fact to the mortgagees that he had conveyed the property to his sons. But as the sons assented to this mode of doing the business, and bona fide mortgagees without notice would be protected against the unrecorded deed, it rebuts the presumption that the father was permitted to exercise

this kind of control over the property to defraud creditors. A more suspicious circumstance is the renting of the store in the spring of 1825, for the term of five years, by J. Housman in his own name, describing it as his store and receiving the rent of the same for two quarters, without disclosing the fact that he had conveyed the lot to his sons between two and three years before. The answers of the defendants, however,in response to the bill, contain positive allegations that the father was authorized to rent it as the agent of the sons, and that the rent was actually paid over to them. The answers also show that the rent was not received by the father between the time of making the deed and the spring of 1825, but was received by the sons or one of them ; and there is no evidence to contradict the answers in this respect The farm at Staten Island has also been occupied by the sons, or one of them, since August, 1822, until it was sold by them. There is, therefore, no presumption of fraud which can arise in relation to the farm on Staten Island, or the lot and stores at No. 53 Whitehall-street, from a continued possession of the grantor after the giving of the deed. And since the decision of the court for the correction of errors in the case of Seward v. Jackson, ex dem. Van Wyck, (8 Cowen, 496,) the question must be considered as settled in this state that a voluntary conveyance is not per se fraudulent, even as against creditors to whom the grantor is indebted at the date of the deed. But before that decision it was well settled that a voluntary conveyance from a person not indebted at the time, accompanied with an immediate transfer of the possession of the property to the grantee, was valid as against subsequent creditors. (Cosby v. Ross’s adm’rs, 3 J. J. Rep. 290. Sexton v. Wheaton and wife, 8 Wheat. Rep. 229.) As to the premises contained in two of the deeds there is nothing from which it can be legally inferred that the conveyances were made to defraud creditors. I shall therefore proceed to consider whether these two deeds can be avoided upon the ground upon which the vice chancellor has based his decree in this case. The house and lot at the comer of Whitehall and Front streets conveyed by the third deed depend upon a different principle, which I shall hereafter consider.

The consideration expressed in these deeds, which were intended to convey the title to the grantees under the statute of uses, is stated to be the payment of money to the grantor: when, in point of fact, the real consideration was a desire on the part of the. father to settle the property on his children. If this last consideration had been stated in the deeds, there could be no possible doubt that they would have operated as covenants to stand seized, so as to have transferred a valid title to the grantees. But the vice chancellor has put his decision upon the ground that where a deed is stated to be upon a pecuniary consideration to make it valid as a bargain and sale, the deed is inoperative as a bargain and sale if no pecuniary consideration was in fact paid ; and that the grantee in such a case cannot be permitted to show a consideration of love and affection, so as to give effect to the conveyance as a covenant to stand siezed to his use. In this I think the vice chancellor is clearly wrong. If there is no evidence of fraud in fact in giving the deed, or any subsequent acts of the parties from which fraud can be legally inferred, subsequent creditors cannot be permitted to inquire into the fact whether the consideration expressed is the true consideration. In other words, they are in no better situation than the grantor himself, through whom they claim, who is estopped from denying that the consideration stated in the deed was actually received and paid ; unless the deed is founded upon a consideration which is corrupt or illegal, or the deed has been fraudulently or unfairly obtained. The extent and sufficiency of the consideration in reference to the value of the land is only material where the grantor was indebted at the time of the conveyance and creditors are seeking to set aside the deed on the ground of fraud, or where the conveyance is alleged to be voluntary and therefore fraudulent as against subsequent purchasers. But for the mere purpose of conveying the land by an instrument which is to operate under the statute of uses, it is sufficient if any consideration appears upon the face of the conveyance sufficient to raise the use ; and neither the grantor nor his heirs are permitted to aver or prove that the consideration stated therein did not in fact exist. The learned author of the Touchstone says: “In a conveyance by bargain and sale there must be some good consideration given, .or at least said to be given for the land; and if the deed make mention of money paid, as in consideration of £100, or the like, and in truth no money is paid, yet the bargain and sale is good. And no averment will lie against this which is expressly affirmed by the deed.” (Shep. Touch. 222. Fisher v. Smith, Moore’s Rep. 569. Chiles v. Coleman, 2 A. K. Marsh. Rep. 299.) I believe it cannot be doubted that a man who is perfectly free from debt can make a deed of gift to an illegitimate child, or even to a stranger, which will be valid as against the claims of subsequent creditors. But even in such a conveyance, to render it valid under the statute of uses, a pecuniary consideration must be inserted although none is in fact paid ; a consideration of blood or marriage being essential to render the deed effectual as a covenant to stand seized. And yet, upon the principle contended for by the counsel and adopted by the vice chancellor in this case, such a conveyance would be void, upon proof that the pecuniary consideration mentioned therein, as a matter of form merely and to save the expense of a common law conveyance, was not in fact paid.

Again; I am inclined to think that if necessary these conveyances might be permitted to operate as covenants to stand seized to the use of the grantees, even if the statute of enrolments existed here, or there was any other cause why they could not be permitted to operate by way of bargain and sale. Where the intent of the grantor to pass the land is apparent, if for any reason the deed or instrument by which the transfer of title was intended to be effected cannot operate in the way contemplated by the parties, the court, if possible, will give it effect in some other way. And judges have been very astute in such cases in their endeavors to make the conveyance operative one way or the other to carry into effect the intention of the grantor or donor. Thus in the case of Roe v. Trammer, (Willes Rep. 682, 2 Kenyon’s Rep. 230, S. C.,) where the ultimate limitation of the fee to a collateral relative of the grantee could not operate by way of lease and release, which was the form of the conveyance adopted, because it was the grant of a freehold in futuro, and was not effectual as a bargain and sale because there was no" consideration paid by the grantee of the reversion, the court gave effect to the conveyance as a covenant to stand seized, on the ground that the grantee was described in the deed as the eldest son of the uncle of the grantor, and of course a blood relative. So in the case of Jackson v. Swart, (20 John. Rep. 85,) the late Chief Justice Spencer held that a deed from a man to his sons, which purported to be founded upon a pecuniary consideration only, might operate as a covenant to stand seized; and that a reservation of a life estate to his wife, without any other consideration except that she was described in the deed as his wife, was valid as a covenant to stand seized of the life estate for her use. In the present case the grantees are described in the deeds as the sons of the grantor. And if the deeds cannot operate by way of bargain and sale, they can, upon the doctrine of these decisions, be made effectual as covenants to stand seized of the premises to the use of the grantees ; especially when it is proved that this relationship formed the real consideration of the conveyances, and that the pecuniary considerations expressed therein were merely formal.

So much of the decree of the vice chancellor as declares and adjudges the deeds of the two stores and lot of ground No. 53 Whitehall-street and of the farm on Staten Island to be void, and charges the defendants W. C. & J. A. Housman with any part of the monies raised by the sale or mortgage of these premises, is therefore erroneous and must be reversed.

The house and lot at the corner of Whitehall and Front-streets were conveyed by a separate and distinct deed; which deed, upon the facts disclosed in this case, must be considered as fraudulent and void as against those who became creditors of J. Housman while he was permitted to retain possession of the premises conveyed as the ostensible owner thereof. In this case, whatever may have been the intention of the parties to this deed, the complainants have actually been deceived and defrauded by the grantee’s neglect to put the deed on record and suffering the grantor to occupy and use the premises as his own, and as if no such conveyance had in fact been made. For it appears from the testimony of the cashier that the credit to J. Housman was given upon the faith of his being the owner of a large real estate. Although the continued possession of the vendor upon an absolute sale or conveyance of property is not conclusive evidence of fraud as against the claims of creditors, where such continued possession is satisfatorily explained consistently with the deed, it is presumptive evidence of fraud; which presumption is not rebutted by merely showing that the consideration expressed in the deed is not the true one, and that the grantor was permitted to remain in possession because he had given the property to the grantee. This is one of those cases in which the grantee is not permitted to rebut the prima facie evidence of fraud, arising from the apparent nature of the transaction, by averments or evidence contradicting the deed under which he claims. Here the possession of the father continued, notwithstanding the deed of gift to his sons of an estate in presentí; leaving those with whom he was doing business and contracting debts to suppose he was still the real owner. And no change of possession took place until his own personal losses and the failure of those to whom he had lent his name and credit had rendered him hopelessly insolvent. The only attempt to account for this possession of the property, wholly inconsistent with the terms of the deed, is the supposition of counsel that the sons were unwilling to deprive a father who had given them the property of the use and occupation thereof so long as he wished to retain it himself. The short answer to that is, that if he wished to retain the use of the house and lot while he continued to reside and do business in New-York, the terms of the deed would probably have reserved the right; unless his object was to retain the use of the property himself and at the same time to place it beyond the reach of. creditors in the event of his insolvency by any misfortunes in business. And if such was his intention, the conveyance was clearly fraudulent as against such creditors who have since dealt with him upon the faith of his ostensible ownership of the property.

The complainants were therefore entitled to a decree declaring the deed of that house and lot fraudulent and void as against them; and directing the payment of the amount of their judgment with interest and the costs of the suit out of the proceeds of a sale of the premises, to be made under the direction of a master. And if those proceeds prove insufficient for that purpose, the rents and profits which have been received by W. C. & J. A. Housman since the return day of the complainants' first executions against the property in New-York should be applied in satisfaction of the judgments and costs.

The decree of the vice chancellor must be modified accordingly. And as neither party has succeeded wholly upon this appeal, I shall not give costs on the appeal to either party as against the other. If an inquiry as to the rents and profits shall become necessary, the master who makes the sale must proceed and take an account thereof immediately after the sale so as to include the rents and profits up to the time when the purchaser is to be let into the possession of the premises.