author: Judge Sherman :

text:
    John T. Barr v. J. Hatch and others.
    It is a general principle that courts of equity may supply defects in the execution of a power, where the original contract was fair, and the power fairly given.
    The purchaser under a judgment is entitled to stand in the place of the judgment creditor, and is invested with all Ms rights against the judgment debtor, and those claiming under him.
    Conveyance by a debtor of his whole estate, whilst a suit is pending against him, is not a fraud per se, but, so far as it is a badge of fraud, may be explained and justified by proof.
    The vendor retaining possession of real estate sold, and deed executed and recorded, upon a verbal understanding with the purchaser to pay rent, is not fraudulent per se against creditors.
    A stipulation that the vendor of lands will repurchase at the same price, within twelve months, at the option of the purchaser, is not evidence of a secret trust for the benefit of the vendor.
    Where a debtor before judgment makes a bona fide sale of lands, and executes a defective conveyance, the equity of the purchaser is superior to that of the judgment creditor, and a court of chancery will compel the judgment creditor, if he obtain the legal title under his judgment, to convey to the purchaser.
    This cause came before the court, upon adjournment from Hamilton county. It was argued by Wade and Hayward, and N. Wright, for the complainant, and by Hammond and Benham, for the defendant Hatch. The case is fully stated and the authorities cited noticed, in the opinion of the court, the arguments are therefore omitted, being too elaborate for insertion.
   Opinion of the court, by

Judge Sherman :

The complainant set up an equitable title to a house and lot, in the city of Cincinnati, for which the defendant, Jerusha Hatch, heretofore recovered a judgment, in ejectment, against him.in this court (1 Ohio, 390), and seeks a conveyance of the legal title, and a perpetual injunction of that judgment. The questions, which have been made, necessarily lead to an examination of the facts of the case. The Miami Exporting Company, on June 18,1821, were indebted to the complainant, then a resident of Baltimore, about fifteen thousand dollars, for the notes of the company before that time deposited with them. And William Barr and John Sterrett then the general agents of John T. Barr, with authority to collect and receive his debts, but without a special authority to take lands, and one of them a director of the company, agreed with the board of directors to take the house and lot in question, with other real estate, for ten thousand seven hundred and sixty dollars, being all the *lands then owned by the company in fee. On the same day the board of directors, by a resolution, authorized and directed O. M. Spencer, their president, to execute a deed in fee simple, with covenants of general warranty, to the complainant for the real estate so sold, and Spencer did the same day, in pursuance of that resolution, execute a deed of conveyance for the land, which was immediately recorded, and the complainant’s agent gave-a check for the amount of the consideration money, and thereby discharged so much of the debt owing by the company to J. T. Barr. At the time this arrangement took place, the Miami Exporting Company were justly indebted to the State of Ohio about nine' thousand dollars, and legal process had been served on them, by which it was expected that judgment would be, as in fact it was, obtained, at the June term of the Supreme Court, commencing on the 15th. Upon this judgment execution issued, was levied on the-house and lot in controversy, and sold to the defendant, Jerusha Hatch, on November 25, 1821, for two hundred and fifty dollars. At the time of the sale, upon execution, the agent of the complainant attended and gave notice to the agent of the defendant, J. Hatch,, and others present, that the complainant owned the property and had a deed therefor from the Miami Exporting Company. The company continued in the possession of part of the house, it being their banking house, from the sale to Barr, to August, 1823, without any written lease, but under a parol agreement with the agents of complainants as to their rent.

At the time the order to execute a deed was made by the board of directors, they authorized their president to execute a bond to complainant, that if he should reconvey the property within one year, they would place the amount of the consideration money to his credit upon their books.

In July, 1823, the defendant, J. Hatch, commenced an action of ejectment for the house and lot in question, against the complainant, and recovered judgment, in consequence of the defective execution of the deed to the complainant, by the agent of the Miami Exporting Company.

It is shown that a fear that the property might be sacrificed, by sale upon execution, under the judgment about to be obtained by the state, was a moving cause with the company, for entering into the arrangement for the sale to Barr.

*The general principle that courts of chancery may supply any defect in the .execution of a power, whether that defect arises from mistake, accident, or ignorance, is not questioned. Whenever the intention to execute a power is sufficiently manifest, but the execution is defective, or it has not been executed according to the terms, or in the form prescribed, equity will correct the mistake or supply the defect. When nothing has been done, or attempted to be done, toward the execution of a power, equity, in general, will not interfere, unless the instrument creating the power shall have vested, or recognized, in third persons, rights to secure which the execution of the power is necessary. If the attorney or agent has attempted to execute the power, but has done it defectively, the party claiming under it can not avail himself of it, at law; equity interposes its aid, upon the broad principle •of relieving against accident or mistake.

It is also a well-settled rule, that when an instrument, intended as a deed to convey lands, has not been so executed as to pass the estate, or vest a legal title, equity has considered it a contract for .a deed, and decreed, if the consideration has been paid, the title to be perfected.

Upon either of these grounds the complainant would be entitled, as against the Miami Exporting Company, to the relief sought. Nor do they resist it, as they have neglected to answer, and permitted the bill to be taken as confessed against them. The defendant, J. Hatch (the only defendant who has answered the bill), however, contends, that the sale to Barr, by the Miami Exporting ‘Company, was fraudulent and void as against their creditors, and that her equity is equal to Barr’s, and a court of chancery will not deprive her of any legal advantage she may have fairly obtained.

There can be no doubt that the defendant, J. Hatch, under the judgment in favor of the state, can protect herself in the same .mannei*, and to the same extent, that the judgment creditor could, had he purchased. If the sale to Barr was fraudulent and void, as against the judgment creditor, it is fraudulent and void as against the purchaser at sheriff’s sale under such judgment. Any other rule would compel the judgment creditor to become the purchaser, or deprive him of the benefit of his judgment and execution. No prudent person would purchase, at sheriff’s sale, property previously ^conveyed by the judgment debtor, however apparent or gross the fraud attending such conveyance might be, if he was to be separated from the rights of the judgment creditor, and could not avail himself of them to protect his purchase. It is true, as has been stated in argument, that the purchaser, under execution, holds as purchaser, and not as judgment creditor. But he holds with the benefit of the judgment lien. If a debtor alien his lands, with the intent, and for the purpose of defrauding his creditors, such alienation, as against such creditors, is void, and the estate is considered as remaining in the debtor for all purposes beneficial to the creditor. It may be attached, if the debtor abscond; is subject to the lien of a judgment ; and is in every way liable to be appropriated to the payment of the creditor, in the same manner as if no conveyance had been made. The purchaser at sheriff’s sale acquires all the right, title, and interest in the land which the debtor had at the commencement of the judgment lien ; is vested with the rights of the creditor; entitled to the same relief, and can protect his title against the frauds of the judgment debtor in the some manner, and to the same extent, that the judgment creditor might have done had he purchased. 2 Johns. Ch. 36.

It is contended that the circumstances attendant upon, and connected with the sale to Barr, show that it was fraudulent as to the creditors of the Miami Exporting Company, and the defendant insists that the proofs establish the following facts, upon which she relies either as badges of fraud, or as amounting to fraud in law :

First. That it was in the intention of the parties to hinder or delay the state in the collection of its debts.

Second. That the grantor was largely indebted in a suit pending, and judgment about to be obtained at the time of the conveyance.

Third. The conveyance was of all the estate of the debtor liable to execution.

Fourth. The grantor remained in possession after the deed, and contrary to its terms, and upon no obligatory or definite lease.

As the question of fraud must, in a great degree, depend upon a minute and careful examination and comparison of the proofs and exhibits in the cause, and upon giving to *eaeh circumstance its due weight, it can scarcely be expected that the court should detail each particular fact that may have influenced their judgment, especially when there is no probability that a case attended with /the same circumstances will again occur. Such a. detail would be tedious as well as useless. It will be sufficient to notice the prominent facts and circumstances.

First. It is said that it was the intention of the parties to hinder and delay the state in the collection of its debt. If the proofs of the case clearly made out the fact that the sale to Barr was a contrivance to delay or obstruct the state in the collection of its debt, it would be difficult to avoid the conclusion that it was fraudulent. But we are not satisfied that such was the intent of the parties. Spencer, the president of the company, states in-his testimony that a fear that the property might be sacrificed by a forced sale, under the judgment about to be obtained by the state, was one moving cause for the bank to make the sale to the complainant. It appears that his agents knew of the pendency of the suit, and one of them was-then a director of the company. On the other hand, it is clearly shown that the company were .then, and had been for a long time, largely indebted to Barr, who was anxious to obtain payment, which they were unable to make in cash ; that his agents offered to take the property at its full cash value, and did, in fact, allow about eight thousand dollars for the house and lot- now in dispute. The. agents of Barr endeavored to secure the debt due him, but there is no circumstance warranting the belief that they were influenced by the wish to hinder or delay the state. The Miami Exporting Company were then in such a situation that they could not reasonably expect to retain the property, and if it should be exposed to sale, for what it would command in cash, as it necessarily must have been upon the judgment in favor gf the-state, there was a moral certainty, considering the situation of the country at that time, that it would bring but a small portion of its actual value. That the company should fear a sacrifice of a groat part of the value of the property, if sold upon execution, is probable, and that they should be influenced by that fear to accept. the proposition of another creditor to allow them the full value, is equally probable, and does not indicate a fraudulent intention to hinder *or delay the state in the collection of its debt. The sale to Barr might, and probably did, produce the effect of •delaying the state in the collection of its debt, but it does not appear that that was the object the company had in view. Their intention appears to have been to make the best disposition in their power of their property for the payment of their debts, and we •can conceive nothing immoral or unjust in an individual or corporation so circumstanced that- their property must soon be sold for what it will bring in cash, conveying it to a creditor for its full value, although moved to make such conveyance by the fear of or the wish to avoid sacrifice. It is not any disposition of his property, by a debtor, that produces the effect of hindering or obstructing the creditor in the collection of his debt that is fraudulent, but it is the intent with which the disposition is made that gives a character to the transaction. If the object of the parties be to obstruct or hinder the creditor, and a conveyance is made for ¡this purpose, such conveyance is fraudulent and void, although a full consideration be paid. But such fraudulent intent ought to be clearly shown, especially when the conveyance is made to a •creditor in satisfaction of a just debt and for a full consideration. In Wills v. Franklin, 1 Bin. 513, it was held to be neither immoral nor unfair to prevent a creditor, after suit brought, from obtaining a priority by his judgment. In Hendrick v. Robinson, 2 Johns. Ch. 283, the chancellor, after citing and examining many of the English eases on the subject, comes to the conclusion that a debtor, in failing circumstances, may make a deed or assignment to one creditor of all his property, although it produces the effect •of delaying or hindering all other creditors, when such was not fraudulent in its inception or intention.

It is also contended that the grantor, being largely indebted, and a suit pending ready for judgment at the time of the conveyance to Barr, furnishes strong evidence of fraud. It was said in Twyne’s case, 3 Coke, 80, and has since been repeatedly recognized that the pendency of suit, at the time of making sale of goods, was a badge of fraud. This, like every other badge or indicium of fraud, while it remains unexplained, is a circumstance from which courts are warranted in presuming there is some concealed or secret trust in favor of the vendor, or that it is a mere contrivance to * cover up the property from the creditors. Pendency of suit does not, of itself, make any alienation by the debtor void, but when such alienation is of all, or nearly all of the debtor’s property, it may furnish a strong presumption that such sale was mere pretense and contrivance to avoid payment. When the sale is made to a creditor, in payment of a debt, admitted to be justly due and for a full and fair price, and the debt discharged, all the presumption of fraud arising from the pendency of suit by another creditor is removed. In this case the testimony clearly shows that the sale to Barr was not made with the intent of withdrawing the property of the company from the payment of their debts, but for the purpose of discharging, to the full amount of its value, the claims of perhaps a favored creditor.

Third. The same observations are applicable to the objection that the conveyance was of all the estate of the debtor liable to execution. This is also, as is said in Twyne’s case, a mark or sign of fraud, a circumstance from which, if unexplained, courts are warranted in presuming that the sale was made for the use of the vendor, and to conceal the property from creditors; but when all the circumstances attending the sale show that the intent of the parties was legal and honest-, that the property sold was not of greater value than the debt discharged, all presumption of fraud, arising from the fact that the conveyance embraced all the estate of the debtor liable to execution, is repelled. There is a class of cases in the English reports where their courts have held that an assignment, by a person subject to their bankrupt laws, in contemplation of bankruptcy, of all or nearly all of his effects, is a fraud upon those laws, as a contrivance to avoid their effect. These decisions go upon the ground that creditors trust to those-laws for an equal distribution in ease of the misfortune of the debtor; that the whole object of those laws is to secure the management of the property of an insolvent debtor, by third persons, and to insure a pro rata distribution, and that both of these objects would be defeated, by permitting a debtor, on the eve and in contemplation of bankruptcy, to give priority to one or more creditors, by assigning his effects. Yet there an assignment is held valid, if made at the solicitation of a creditor, to pay or secure ajust debt, although a debtor was at the time insolvent, and contemplated *an act of bankruptcy, and the effect is to prevent an equal distribution of the property of the insolvent debtor, thereby defeating the policy of the bankrupt laws. Those cases, and the principles upon which they are decided, have no application where bankrupt laws are unknown, and neither courts of law nor equity possess the power of preventing a failing debtor from giving preference to particular creditors, when there is no fraud or collusion. But the sale to Barr was not a general transfer of' all the property of the company, but a conveyance of certain parcels of real estate, being then ail owned by them in fee. There is no evidence of the amount or value of personal property, if any,, then owned by the company, or the amount due then upon note, bond, or mortgage. The fair presumption is, that it was collectively oí much greater amount than the judgment in favor of the1 state. Banks do not, usually, even if not prevented by statute, vest any great portion of their funds in real estate, nor do the holders of bank paper ordinarily look to such property as furnishing the means of payment. By the provisions of certain statutes of our legislature, in force at the time the state obtained judgment, all debts due a bank — notes and every other description of property owned by them — could be reached by legal process, and their whole funds in the hands of their agents or officers, and all mortgages and trust estates held by them, could be subjected to the payment of their debts. It can not, therefore, be justly said that the conveyance to Barr was of all the property of the company liable to execution, when they possessed funds to a great amount liable to be taken, at the option of the creditor, by a special legal process, and sold or appropriated for the satisfaction of his demand.

It is contended that the conveyance of the house and lot in question, by the company, and remaining in possession after the deed contrary to its terms, and upon no obligatory or definite lease, is a fraud per se against the creditors, and as to them the estate did not pass by the deed. It is unnecessary, in this case, to inquire, whether retaining possession of chattels after sale by a debtor, is as to creditors a fraud per se, or merely evidence of fraud, to be considered in connection with all the other circumstances, to ascertain whether there was fraud in fact. There are numerous highly respectable ^authorities on this question, directly conflicting with each other, but I have not been able to find a case, where it has been judicially determined-that a sale and conveyance of lands was to be deemed absolutely fraudulent in law, against creditors, because the grantor retained possession after the deed. It is true, there is a dictum of Lord Rosslyn’s to that effect, in the case of Bates v. Graves, 2 Ves. Jr. 292, but it was no way material to the decision of the cause, nor is any authority cited, or reason given to support it; and the observation of the chancellor, if reported correctly, is merely used arguendo. In Hildrith v. Sands, 2 John. Ch. 46, Chancellor Kent relied on the fact of the grantors remaining for many years in possession, without paying rent, and making improvements, among the other -circumstances of the case, as evidence that the sale was fraudulent; but it does not appear to have occurred to the counsel or court, in that case, that the grantors, retaining possession of the lands, after the sale, was a fraud per se. The reasons given, why the possession of goods by the vendor, after the sale, should be'considered as a fraud per se, are, that the public have no means of ascertaining the ownership of goods, but by the possession, and that the vendor, if the goods are left in his possession, will be enabled thereby to obtain credit and impose upon the community. But the reasons fail when applied to lands, the title of which does not rest in parol, nor is it evidenced by possession, but can only be conveyed by deed executed in a particular manner, which the grantee, if he would insure his title, must place upon record, in a public office, open to the inspection of the world. Nor can any serious apprehensions be justly entertained, that the grantor of lands, by retaining possession, will be thereby enabled to obtain a false credit. That the possession of real estate, by the grantor, after an absolute conveyance, may justly be considered as a circumstance tending to raise the presumption of fraud, is undoubtedly correct; but that it does not of itself amount to fraud, and thereby vacate the conveyance, and prevent the estate from passing, is, we think, equally clear. It must be taken in connection with all the circumstances of the case, and if those circumstances rebut any presumption of fraud arising from the possession of the lands remaining in the grantor, the deed can not justly be pronounced inoperative and void.

*In this case, however, the testimony shows that the legal possession was changed. The company, who were still engaged in banking business, rented by parol a part of the house containing their vault and other accommodations necessary to the transaction of their business, and thereby'became the tenants of Barr, ■‘holding part of the property as such and paying rent therefor. It is immaterial to inquire whether this contrast to lease, being by parol, could have been enforced under our statute of frauds and -perjuries. If it should be admitted that neither party could havo sustained a bill to enforce a specific execution of this contract, yet, as tbo parties did execute it, it created the relation of landlord and tenant between them, and the possession of the company was legally the possession of Barr, as effectually as .if they had held it by virtue of a valid written lease. All presumption of actual fraud derived from the possession, by the company, of part of the property conveyed, is repelled by the proofs in the cause. The .amount actually paid by Barr by discharging so much of the debt due him, the immediate recording of the deed, the going into possession of part, leasing the residue by parol, all show that on his part the purchase was bona fide, and, independent of the positive testimony of the officers of the company, their acts after the sale show that they considered the complainant the owner and landlord of the whole, themselves as tenants for a part only.

It has also been supposed that the resolution of the board of •directors, authorizing a bond to be given to the complainant to place the amount of the consideration money to his credit, if within one year he reconveyed the property to the company, furnishes a strong presumption of fraud, or of a secret trust in favor of the grantor. This transaction is wholly unexplained by the proofs in the cause. No such bond was executed, nor does it appear that it was required by the agents of Barr, or that they, in fact, had any knowledge of such a resolution of the board of directors. The fair presumption is that it was passed by the directors to be. used by their agent, if necessary, to induce the agent of the complainant to agree to receive the property at the price affixed by the board, and affording him, if desired by his agents, the means of rescinding the contract should he be dissatisfied ^with it. Barr was a merchant residing in the city of Baltimore; and it might not be desirable to him to invest so large an amount as ten thousand dollars in real estate in the western country, especially at a time when real estate was much depressed in value, and it was very difficult to convert it into cash. But whatever might have been the motives of the directors in adopting this resolution, it does not appear, either from the resolution itself, or other testimony, that it was designed to create any secret trust in their favor, or in any way to deceive and defraud. Their conduct is rationally accounted for by believing their intention to be to-sell this property for its full value in payment of their debts, even though such sale was conditional in favor of the purchaser, rather than leave it to be taken by the first judgment creditor, and sold at public auction for what it would bring in cash. This resolution does not purport on its face that there shall be reserved to the-company any right or privilege to redeem, but the option is to be given to the purchaser of reconveying within a given time, and thereupon the bank are to place the amount of the purchase money to his credit upon their books. Nothing was done under this resolution by which either party acquired any rights, or became subject to any obligations, and we can not perceive that the circumstance of vesting the president of the company with a discretionary power, which was never exercised and never could be to the benefit of the bank, taints the transaction with fraud, or conduces in the least to show the existence of a secret trust.

The court are satisfied upon a careful examination of all the circumstances connected with the sale to Barr, that it was fair and bona fide free from the taint of fraud, and not upon any secret or concealed trust; that the sale was made to a creditor for a full and fair price actually paid, by discharging so much of the debt due him by the vendor; that the deed was executed in an open public manner, and immediately placed upon record, and that it was owing to a mistake in the execution that it was prevented from having full effect' at law; that the complainant is entitled to the-aid of this court to have this mistake corrected against the defendant, J. Hatch, who purchased with full notice of the sale to Barr, unless her equity, standing in place of the state, is equal to the complainant’s.

*It has already been observed that the defendant, J. Hatch, having purchased under the judgment in favor of the state, can protect her title in the same manner and to the same extent that the state could, had the purchase been made by the state in the character of judgment creditor. She acquired by the sheriff’s deed all the title and interest of the judgment debtor in the lands at the time the judgment lien attached, with all the rights incident to or growing out of that lien. A creditor acquires no interest in, claim to, or lien upon the lands of his debtor, by suing out legal process to enforce the collection o his debt, and until judgment they remain free to be aliened by the debtor. If the debtor convey his lands for the purpose of defrauding his creditors, such conveyance is void as to them, whether suit be pending against him or not; but if it be fair and bona fide it is valid and operative, although suit be pending and ripe for judgment. The lien of the judgment in favor of the state did not attach to the lands of the Miami Exporting Company until June 15, 1821, and anterior to that time she stood in the relation of a general creditor of the company. But on the 8th of that month, the complainant purchased the property now in dispute for a valuable consideration actually paid, by extinguishing so much of the debt due him, and thereby acquired such an equity in this property as is known, recognized, and protected in a court of chancery. The deed from the Miami Exporting Company, although so defectively executed as not to pass the legal estate, is, in equity, treated as at least equal to a contract to convey, and for many purposes is considered as an actual conveyance. The intention of the parties doubtless was to execute to the complainants a perfect present conveyance in fee of the land, on June 8, 1821, and he was entitled on that day to such conveyance; and equity, acting on the broad principle of considering that as done which ought to be done, will, as between the parties and all others claiming as volunteers, or purchasers with notice, decree as though the conveyance had been executed by the parties-in the terms and at the time intended or agreed.

In Wadsworth v. Wendell, 6 Johns. Ch. 224, Kent, Chancellor, decided that an instrument purporting to be a conveyance by a soldier of his bounty lands, but which, in fact, had no seal affixed, and was executed before the issuing *of the patent, was defective as a legal conveyance, but passed the interest of the grantor in equity, and entitled the grantee to relief against a subsequent purchaser, who was chargeable with constructive notice of such defective conveyance. In this case, the chancellor, after reviewing many of the authorities, states the doctrine as too well established, and too just in itself to admit of any doubt that a defective conveyance binds the lands in equity against the heir of the grantor, any subsequent voluntary grantee, or subsequent pur-, chaser, with notice of the equitable title of the plaintiff. In Sugden on Yendors, 481, it is stated, as the result of all the authorities, that a purchaser, by a defective conveyance, will be assisted In equity against heirs or assignees of a bankrupt, all persons claiming with notice, and creditors who did not rely upon the land as their primary security, though they have obtained an advantage at law. It is undoubtedly true, as a general principle, that when the equity of the parties is equal, courts of chancery will not interfere to deprive either party of a legal advantage he may have obtained; but this rule is only applicable when the •equitj jt the parties is not only equal, but is such as is known and recognized in courts of chancery, and by this rule, so understood, the rights of the parties to the property in dispute must be tested.

The equity of Barr, on the day the defective deed was executed and delivered to him, was that of a purchaser of the property in ■question for a full and fair price, entitling him to a perfect conveyance, while the equity of the state was that of a general creditor of the grantor, seeking satisfaction of his debt, an equity that attached itself to no particular part of the property of the debtor, or gave the creditor any interest in or lien upon the lands of such debtor; and would not be recognized in this court, unless special circumstances rendered it necessary to resort here to aid in enforcing payment. It can not, therefore, be justly said that the equity ■of the parties was equal, on June 8, 1821, or that the complainant .acquired by his purchase no other equitable rights than those of a general creditor. Anterior to that time both the state and the •complainant were general creditors of the Miami Exporting Company, having no specific lien upon any property, and their equity, if equity *it can be called, was to have payment of their debts; but on that day the complainant became a purchaser, and was, thenceforth, in equity, vested with the rights resulting from this new relation, although the conveyance to him was so defectively executed as not to pass the legal estate.' The defendant, J. Hatch, having purchased at sheriff’s sale, under a judgment, the lien of which commenced subsequent to the conveyance to the complainant, and with a knowledge of that conveyance and its contents, is not entitled, in good conscience, to retain the legal advantage he acquired by the sheriff’s deed, against the elder and superior equity of the complainant.

I have not thought it necessary to consider what would have been the effect of the claim of the complainant, if, instead of beicoming a purchaser, he had taken a mortgage as collateral security, so defectively executed that he could not avail himself of it at law. There is certainly a difference between that case and the one before' the court; but whether that difference would prevent the eourtfrom correcting the mistake, or supplying the defect in the execu- - tion of such mortgage, as against other creditors of the mortgagor,. I will not pretend to say. In case a mortgage had been given, the-relation of debtor and creditor would have subsisted between the' parties; the debt would have remained, upon which suit might be-brought, judgment obtained, and other property of the judgment debtor taken in execution; but, by the purchase made by the complainant, ten thousand seven hundred and sixty dollars of his debt was paid and extinguished, and as to that sum, the company no longer remained his debtor.

Decree for complainant, etc.


source: Caselaw Access Project

author: Judge Sherman:

license: Public Domain

text:
    *Heirs of Ludlow v. Kidd’s Executors, Bank of the United States, and others.
    Bill by infants dismissed on final hearing; decree subsequently reversed on-' bill of review. Purchasers after dismissal, and before bill of review-filed, are not pendente lite purchasers.
    Purchase of a leasehold estate in lands may be protected in equity, when’ purchased for valuable consideration without notice.
    *This cause was adjourned here for decision from Hamilton county. The case is sufficiently stated in the opinion of the court.. It was argued by Garrard, Hammond, and Storer, for the complainants, and by Fox, Caswell, and Starr, and N. Wright, for the-respondents. The court having embodied a brief notice of the arguments in the opinion, they are omitted.
   Opinion of the court, by

Judge Sherman:

The complainants, the heirs at law of Israel Ludlow, deceased in 1811, being then infants,'filed their bill against Kidd and Williams, to obtain the legal title to a-lot in the city of Cincinnati. In 1817, the Supreme Court, upon the hearing, dismissed the bill upon the merits, the plaintiffs still continuing minors. In 1825, and within the time allowed them by statute, alter attaining full ager they filed their bill of review, upon the hearing of which the decree •of dismissal was reversed, and the cause continued for hearing. In 1827, after the decree of reversal, a supplemental bill was filed, making the Bank of the United States, Shaw, and others, defendants, all of whom, except the Bank of the United States, have pleaded, that after the original decree, and before the filing of the bill of review, they severally purchased, for valuable consideration .and without notice, several parts of the lot claimed by the plaintiffs. The Bank of the United States have answered, that after the ■ original bill of plaintiffs was dismissed, and before the filing of .the bill of review, Kidd then having the legal title to part of said ■lot, leased it to Smith & Loring, for nine hundred and ninety-nine years, renewable forever, at a certain yearly rent; that Smith & Loring, for a valuable consideration, assigned and transferred their interest to the bank, and that neither Smith & Loring nor the respondents had notice of the claim of the plaintiffs. Those pleas and the answer of the bank have been set for hearing without replication, upon the ground that the matter alleged does not ^constitute a defense to the relief sought by plaintiff's, and they insist:

1. That the purchases were made lis pendens, and consequently ..are affected with notice.

2. That as to the leasehold estate, a lessee for years can not protect himself against the right owner, by showing he was a purchaser for a valuable consideration without notice.

The principle that the purchaser of the subject matter of a suit pendente lite acquires no interest as against the plaintiff’s title, whether legal or equitable, is too well established to be now questioned. Such sale as against the plaintiff is considered a nullity, and he is not bound to take any notice of it. The decree of the ■ court binds the property in the hands of such purchaser, although he is no party to the suit, and paid a full price for it, and had, in fact, no notice of the pendency of the suit, or the claim of the plaintiff. He is chargable with constructive notice of the pendency ■of such suit, so as to render his interest in the subject of it liable ;to its event. This rule may sometimes produce individual hardship in its application to a purchaser, for a full consideration, and without actual notice; but if it were not adopted aud adhered to, * there would be no end to any suit. The justice of the court would ,be wholly evaded by alienating the lands after snbpena served, •and the suitor subjected to great delay, expense, and inconvenience» without any certainty of at last securing his interest. It is, for these reasons — reasons founded on public utility and general convenience — that the courts of equity of England and of the United States, whenever the question has been made, have uniformy held that he who purchases during the pendency of a suit is chargeable with constructive notice of the rights of the parties litigant, and •bound by the decision that may be made against the person from whom he derives title. This rule adopted by courts of equity from necessity, and in imitation of the common law, that when the defendant in a real action aliens after suit brought, the judgment in such real action will overreach such alienation, is yet considered as against a real and fair purchaser without actual notice, as a hard rule, and courts gladly avail themselves of any defect in the pleadings or proofs of the plaintiff, to prevent its operation upon such a ^purchaser. Sorrell v. Carpenter, 2 P. Wms. 482. This rule of constructive notice does not extend beyond the termination of the suit, and therefore it has been frequently held that a final decree is not notice of the matters in controversy, and intended to be settled by such claim.

As all the purchases were made after the decree of the Supreme Oourt in 1817, dismissing the original bill of the complainants, and before the filing of the bill of review, in 1825, it becomes important to inquire whether there was, during that interval of time, such a •Zis pendens as to charge the defendants with constructive notice? Eor if there was, their pleas must be overruled, and their interests abide the event of the suit between the original parties.

The complainants contend, that the decree of dismissal, in 1817, whatever were its terms, can not be considered as final, it being against infants. But as conditional, and subject to re-examination and correction, after they attained their age; and if this is not so, that the bill of review afterward filed, is so connected with the original suit that it will, by relation, be considered as pending from the filing of the original bill, so as to affect intermediate purchasers with constructive notice.

By provision of our statute, bills of review must be filed within ■five years after making the decree complained of, except in certain specified cases, of which infancy is one. A minor being allowed five years after he attains full age, to bring such bill. But a decree which puts an end to the suit, has not heretofore been considered the less final because it was subject, within a limited time, to be-reversed upon a bill of review. The argument for complainants is, that the statute giving the infants a day after they became of age,, to file a bill of review, is to be taken as part of the decree itself, and considered as if the privilege was contained on its face; and that the legal effect thereof is, that it remains a matter pendente lite, until the rights reserved by the decree are extinguished. I do mot consider it at all important to determine in this case whether the statute is to bo so blended with the decree, as to be considered a part of it, for if the decree had, in terms, reserved to the complainants the right of showing cause against it, after they arrived at age,, it would not have had the effect of continuing the cause *until that period. A decree to be final, need not conclusively settle and determine all the questions litigated, or rights involved in the suit between the parties, but it must put an end to that particular suit. The decree of dismissal in the original suit has all the requisites of a final decree. It is so in its terms; it is rendered upon final hearing; the court adjudicate upon the equity of the parties, and find that equity in favor of the defendants, and that the complainants are not entitled to the relief which they seek, and decree a. general dismission of the bill, with costs. Nothing is reserved or left for further determination by the court, but the whole controversy between the parties is disposed of, and a final end put to that particular cause, and I can not perceive that the decree, being against infants, at all changes its character or alters its effect as to third persons. ‘ , '

The master of the rolls, in the case of Bishop of Winchester v. Beaver, 3 Ves. 314, in speaking of the infant heir of a mortgagor, observes, he may be foreclosed; that a decree can be rendered against him and he can do nothing but show error; that the person in whose favor the decree is, can “ go to market with the mortgaged lands, and the purchaser is only liable to be overhauled in the-account.”

It is, however, said that when the decree upon the original bill ispened or reversed, upon a bill of review, the cause proceeds upon the original pleadings, and is to be considered as pending from the service of subpena in the original suit, so as to affect all persons with notice. No judicial decision has been cited by the counsel; and the court have not, in their examination, been able to find anys where precisely this question has been determined. The complainants have, however, referred 'the court to two cases which they think are analogous, in principle, to this. The case of Martin v. Styles, cited by Chancellor Kent in Murray v. Ballou, 1 Johns. Ch. 578, and by the master of the rolls in Bishop of Winchester v. Paine, 11 Ves. 200, from Lord Nottingham’s Prologomina of Equity. The case is thus stated by Chancellor Kent: “ The bill was filed in 1640, and was abated by death in 1648; and a bill of revivor was filed in 1662, and the purchase was made in 1651; and yet as the purchase was, by relation of the’bill of survivor, made pendente lite, the purchaser was held bound.” And observes, that he does not cite *the case with approbation; and that it afterward came on in a now shape, and is reported in 1 Ch. Cas. 150. The master of the rolls, in the case in 11 Ves. 200, observes upon the facts of the suit then before him, that the suit was pending when the mortgages were executed ; but if the mortgagees had acquired their title during the abatement of the suit, there would have been great difficulty in charging them with notice as pendente lite purchasers, although there was an instance of its having been done; and he refers to, and cites the case from Lord Nottingham’s Prologomina. The case in 1 Ch. Cas. 150, said by Chancellor Kent to be the very case, in a new shape, stated by Lord Nottingham, is reported as an original bill between William Style, plaintiff, and William Martin et al., defendants; and the facts are detailed with great minuteness.

If the case, as reported in 1 Ch. Cas., is correct, and the facts were as they are therein stated, the question supposed by Lord Nottingham to have been decided, that a purchaser for a valuable consideration, made after the abatement of the suit, and before the bill of survivor, will, after survivor, by relation, be deemed as madepewdmte lite, could not have arisen. The plaintiff, William Style, never could, under any circumstances, have claimed the protection of the court as an innocent purchaser for valuable consideration; for his title was as devisee under the will of Sir Humphrey Style, the defendant in the original suit. It appears, also, that the suit was in full prosecution at the time the title of William Style accrued, and the civil war, and the infancy of some of the parties, are stated by the lord keeper as a sufficient excuse for the subsequent delay and procrastination; and the purchaser, William Style (if a devisee can at all be considered as a purchaser in equity, entitled to protection as such), was not a pa'rty to the sun cited from Lord Nottingham. The doctrine supposed to have been holden in that case, that a purchaser for a valuable consideration, after the abatement of the suit by the death of one of the parties, and before revivor, is nevertheless after revivor, by relation, to bo considered as a purchaser lis pendens, does not appear to have been at all involved in the suit, is contrary to the rule that the doctrine of relation shall do no wrong to strangers, violates the principle adopted by Lord Bacon, and ever since adhered to, that suit must be in full prosecution, has *never been sanctioned by any subsequent decision, or maintained by any judge with approbation The court would not, perhaps, under these circumstances, find much difficulty in coming to the conclusion, if it were necessary to determine the question, that the case from Lord Nottingham is not a conclusive authority, that a bill of revivor so relates back to a suit abated by the death of one of the parties, as to bind an intermediate purchaser for valuable consideration without actual notice. But if it be admitted that the decision stated by Lord Nottingham is correct, it does not bear such a striking analogy to this case, as will clearly furnish a rule of decision for this. The abatement of a suit by the death of a party, is not the final end of it. The bill of revivor is for the purpose of bringing before the court some person responsible for costs, ,and who is capable of conducting the suit; and when it has done •this, it has performed its office. The suit, in all except the name of ■one party, is the same as before abatement, and goes on to final hearing in the same way as if the death had not taken place. There ¡is no decision of the court, except that the cause stand revived ; no .adjudication on the rights of the parties, merely an order that the ■heirs or representatives of the deceased party, or other proper per- • son, be permitted to proceed with the cause. It is not, in substance, ¡the commencement of a new suit, but a proceeding in the old one, rendered necessary by the death of one of the parties, and may be .assimilated in its effect and operation to any of those numerous dedays which often occur in the progress of a chancery suit, either from the course of the practice of the court, or the neglect of the parties. But in this case, there was a decision of the court upon the rights of the parties, and a final decree pronounced, putting an end to the cause, and so long as that decree remained unreversed, •it was conclusive upon the parties as to the matters determined. In the case of abatement and s ubsequent revival, there is a formal termination, but substantial ly a more continuance of the suit, while .in such a case as .this, there is both in form and substance a final decree, putting an end to the cause, though that decree was, as in every other case, liable to be reversed upon a bill of review.

*The other case relied on by the complainants, as analogous in principle to the present, is the case of Stack pole v. Gore et al., in the House of Lords, 1 Dows. 19. It appears by the report of that case that a decree was obtained in 1733, by fraud and collusion, between a tenant for life and others, without making the remainder-man a party, for the sale of certain mortgaged lands. In 1796, immediately after the tenant in tail became entitled to the possession of the promises, he filed a bill to set aside the decree and the sales under it. In 1801 the bill was dismissed by the chancellor of Ireland, and an appeal taken to the House of Lords. After the decree of the chancellor dismissing the bill, part of the property was incumbor.ed with portions and jointures by a marriage settlement. Upon the appeal the decree of dismissal was reversed and a decree given in favor of the plaintiff, the tenant in tail, against the purchaser, under the decree of 1733, on the ground that he not only knew of, but largely participated in practicing the fraud by which the decree for a sale was obtained. Lord Redesdale, in giving his opinion in the House of Lords, and it is the only part of the case at all applicable to this, observes : “ One of the cases was, however, rather stronger than the rest; it was a marriage settlement made after the dismissal of the bill by Lord Clare, but still it was a transaction pendente lite, since it was still a question for their lordships’ consideration whether the bill was rightly dismissed, and the party thus having notice must take the settlement,subject to all its legal and equitable consequences; such a circumstance would not be allowed to intercept the course of justice.”

Appeals, in chancery proceedings, from an. inferior to a( superior tribunal, have been long established in our system of jurisprudence, and one of familiar and daily occurrence in our practico, and it has never been supposed that the appeal was anything other than a proceeding in the original cause, and that a purchaser, after a decree in the common pleas, was nevertheless liable to bo affected by subsequent proceedings, upon appeal to the Supreme Court, should the decree be there reversed or altered. The appeal has the effect of continuing the cause and suspending or vacating the decree of the inferior tribunal until the cause is heard *in the appellate court. The appellate jurisdiction of the House of Lords, in England, in chancery cases, is very similar to that exercised in this state by the Supreme Court, and the manner of effecting an appeal, and the consequences thereof are, in many respects, not unlike ours. A petition of' appeal must be signed by counsel and presented to the clerk of the house within fifteen days after the decree' is pronounced, if the house be then in session, and the party appealing must enter into a recognizance, in the penalty of two hundred pounds, to pay such ebsts to the opposite party as the court shall direct, and is then permitted to take out a caveat to stay the signing and enrolling of the same. Upon the hearing of the appealed cause no new evidence is admitted, differing thus from our practice, and the decree of the lords is sent to the court of chancery to be carried into execution. It is, in effect, a rehearing of the cause by a superior tribunal, and not the institution of a new proceeding, to get rid of a former final decree. If an appeal be taken from the rolls of' the chancellor, and from the chancellor to the House of Lords, it is, in its progress, through these various tribunals, the same suit pending and undetermined, and we can not perceive any analogy it bears to a bill of review to reverse a decree signed and enrolled, for errors apparent on its face, brought many years after the decree complained of was pronounced.

The decree dismissing a bill generally puts an end to that suit; the parties are no longer in court, nor is the cause any further under the control or subject to the direction of the court, and the circumstance that the decree was against infants, who have a right, by statute, to have that decree re-examined after they attain their age, nor the fact that .the decree is afterward reversed, upon a bill of review, will not have the effect of continuing the original suit, so.as to ovorreach intermediate purchasers and subject them to the operation of the rule, that he who purchases a right then under litigation is chargeable with notice, and bound by the decree that may be rendered against the person from whom he derived title.

The case of Kittleby v. Lamb, 2 Chan. 404, quoted and recognized by Lord Eedesdale in Bennet v. Hammill, 2 Sho. & Laf. 566, although it involved no question of notice, *is an authority to show that á bill of review can not, by relation, be so connected with the original suit as to affect intermediate acts done in good faith. That was a bill praying that a certain sum of money, in the hands of trustees, might be laid out for the benefit of plaintiff. The bill was dismissed, and afterward the trustees paid the money to the other party who claimed it. On bill of review the former deeree-was reversed, yet the court determined that the trustees, who relied on the decree of dismission signed and enrolled, were protected in the payment they had made, and that the plaintiff must look to the person to whom the trustees paid it, on the ground that the decree, while it remained in force, bound the rights and justified the trustees, though they paid it voluntarily and without suit.

I have not noticed the argument presented by the defendant’s counsel, that the original bill having been dismissed, generally is to be considered as equivalent to a decree establishing the equitable as well as legal title of Kidd and Williams to the lot in dispute, at least as against the complainants, and that the defendants may be considered as purchasers, under a decree, because I have deemed it unnecessary, and that the question did not properly arise in this case. The general principle that a purchaser under a decree shall not be affected by error in the decree, and that he has a right to presume the court has properly investigated and decreed the rights of the parties, is readily admitted as correct, but it only applies to sales made under and by the decree of the court. In this case there was no decree for a sale, nor any conveyance directed, or other act ordered to bo done to perfect the legal title, The defendants in the original suit, having the legal title to the lands in dispute, and the court find the complainants had no equitable rights superior, made the only decree which in such a case could be made, that is, dismissing the bill. A purchaser from those defendants, in tracing the title from the first patentee to them, would find nothing to direct his attention to that decree, as their title was independent of it, and he could not, therefore, be presumed to have advanced his money on the faith due to a decree of the highest judicial tribunal. Nor have I conceived it at all necessary to consider whether, when a decree, directing the title of an infant to lands to be conveyed, *which by our laws has the effect and operation of a.conveyance, shall be afterward reversed by a bill of review by the infant, an intermediate purchaser who must necessarily trace his title through such decree, can be charged with notice of the rights of the infant, so as to deprive him of the protection given to an innocent purchaser.

The only remaining question is, whether the Bank of the United States are innocent purchasers, in the possession of that part of the premises, which they hold as assignees of a term for nine hundred and ninety-nine years, renewable forever. It is said by the counsel for complainants, that it is indispensable to this, defense that the party should claim the fee simple estate, and should fully pay the consideration money. In order to sustain a plea of purchase for valuable consideration without notice, there must be an averment that the. purchase was made from a person seized, or pretending to be seized, in foe, and that the purchase money has been truly and fully paid. But I know of no ease going the length of deciding that the purchaser must claim afee simple estate to avail himself of this plea. If a person seized, or protending to be seized, in fee of lands, lease them for a term of years to another, who assigns his interest to a third person, such third person, as well as the lessee, is a purchaser entitled to protection in the enjoyment of his estate, however small, if he otherwise bring himself within the rule. But whatever may be the technical rules applied to the plea of an innocent purchaser, or whatever averments may be necessary to sustain it, they have no application to the same defense made by answer. A plea of innocent purchaser, with all its necessary averments, is intended not only to protect the defendant in the possession of that which he holds, but to prevent the chancellor from exercising jurisdiction to deprive him of any advantage he may have at law, however obtained, or take any step, or afford any aid against him. Jerrard v. Saunders, 2 Ves. jr. 254. But when he defends himself by answer, he must make out a case, showing that in equity and good conscience his claim to protection is equal to the complainants to relief, to prevent the court from interfering against him.

There are many cases where courts of equity have protected Iona fide purchasers of leasehold estates, and of goods assigned, and indorsers of bonds, notes, bills of exchange, *bills of lading, etc., in the possession and legal right they have obtained, without notice of adversary claims. The cases of Sorrel v. Carpenter, 2 P. Wms. 482; Tolland v. Stanbridge, 3 Ves. 485; Nugent v. Gifford, 1 Atk. 463, were cases whore the defendants protected themselves as innocent purchasers of leasehold estates; and the same doctrine is recognized in Le Neve v. Le Neve, 3 Atk. 646, although the purchaser of a leasehold estate in that case was chargeable with notice, and of course could not protect herself.'

The case of the Attorney General v. Backhouse, 17 Tos. 283, cited and relied on by the complainants’ counsel, furnishes an apt illustration of the doctrine of courts of equity upon this subject. In that case, it appeared that the trustees of a charity seized in fee, in that character, of some lands, demised them, in 1775, to J. Goad, for eighty years. Goad, in 1776, rented part of the promises to Gurney for sixty-four years. Goad died in 1699, and his executors sold the residue of the leasehold premises, by auction, to the defendant Backhouse. Gurney’s lease was sold by his representatives, and finally came to the defendant Shepherd, who claimed in his answer, that he was a purchaser for valuable consideration, without notice of any fraud, in the original lease from the trustees, and asserting that neither Gurney nor his assignees had notice of the lease under which Goad derived title. The chancellor, after laying down the rule, that to sustain a plea of purchase for valuable consideration without notice, there must be an averment that the party purchased from a person seized, or pretending to be seized in fee, goes on to show that the lease by the trustees to Goad may be such an abuse of the charity estate as to render it void, and observes that “if, therefore, the transaction between Goad and the charity, can be avoided, yet Gurney” (the under-lesseoj “having given a fair consideration, and held undisturbed possession from 1775 to 1803, sales and mortgages having taken place without question, for a period of thirty-five years, the interest of the charity itself, upon all reasonable and equitable principles, requires no more than that I should transfer to the charity the interest.acquired under that bargain.” And he refuses to set aside the in: terest which Gurney acquired by his lease, and protects the sub-lessees, who had given a fair ^consideration, in the interests they had acquired, merely directing them to pay the rent to other persons than those to whom they had contracted to pay it, if it should appear on the inquiry which he directed that the charity ought to receive it. In the late case of Nedfearn v. Forrier et al., 1 Dows. 50, upon appeal to the House of Lords, it was held that a latent equity in a third person should not defeat a bona fide assignee of aright, without notice; and the same doctrine is recognized by Chancellor Kent, in Murray v. Lylburn,2 Johns. Ch. 441. The cases of assignment by operation of law, as assignees of bankrupts, form an exception to this rule, such assignments passing the right, subject to all equities, and the assignees being in the same plight and. condition as those from whom they were derived.

Id this case it appears that Kidd, at the time he leased part of the lot to Smith and Loring, was seized, or pretended to be seized of a legal estate in fee to it; that neither Smith and Loring, nor the bank, at the time they respectively purchased, had notice of the claim of the complainants; that valuable improvements have been made by them, whereby the property is greatly enhanced in value, and that the bank paid a large-sum to Smith and Loring for the leasehold estate. Under such circumstances, a court of equity can not interfere and deprive them of their interest in the property, in favor of a latent equity, unknown to them when they purchased. The most the court could do, would he to follow the example of Lord Eldon, in the case of the Attorney General v. Backhouse, before cited, ordering these defendants to pay to the complainants, the annual accruing rent, instead of the person to whom they contracted to pay it, if, upon the final hearing of the cause against Kidd’s executors, the court should be of opinion the complainants were .entitled to it.

The complainants having asked leave to reply to the pleas and answer, if the court should be of opinion that the matter contained in them was a defense to the relief sought, and the court being satisfied that the complainants are not entitled to relief against the defendants, upon the pleadings, they will be permitted, under the circumstances, to file such replications as they may be advised.