Thomson v. Hester

1. Fbaudulent Conveyance. Creditor who may attack. Payment. A party loses no right by a mere change in the form of his securities, and the holder of a new note given in exchange for an old one may attack a conveyance which would be fraudulent as to the old one. 2. Same. Change in farm of indebtedness. Case in judgment. A note for $6,000, due to T. by H., antedated the fraudulent conveyance by H. to a trustee for his wife. S. held T.’s note for $1,480. H. and T. agreed that T. should assign his $6,000 note to S., in consideration that he should receive the $1,480 note and a new note by H. for $1,400. On receiving the $6,000 note, H. at onjce confessed judgment thereon to S., paid the attorney’s fee, had the land sold under the execution and purchased by the fraudulent trustee by a credit on the judgment, S. being a mere figure-head in the transactions, and H. in reality having purchased from him the $1,480 note. After the judgment, H. made to T. the $1,400 note; but when T., having recovered judgment thereon, sought to subject the land, Mrs. H. claimed that he was a subseqent creditor. Held, that she acquired no new rights under the judicial sale, and her title rests only on the original fraudulent conveyance. 3. Same. Consideration. Fraudulent in part. A conveyance by a husband to his wife, partly on a real and partly on a fictitious-consideration, is, as against existing creditors, valid as to the amount actually due, and void as to the excess. 4. Husband and "Wife. Interest on wife’s money received by husband. A wife’s money received by her husband prior to the Oode of 1857 may be repaid by him to her, with legal interest from its reception until one year after that Oode went into effect; but on her money received by him after that Code, she is entitled to only the interest accruing the year preceding the accounting. 5. Same. Rents and income of separate"estate. Husband accountable, how far. The Code of 1857, page 337, article 28, was erroneously construed in Hill v. Bugg, 52 Miss. 397, the proper construction of the proviso being that the husband is not required to account for the rents, profits, and income (including hire of slaves) of his wife’s separate estate beyond the receipts of the last year next before he is called on to account.

Appeal from the Chancery Court of Hinds County. Hon. E. G-. Peyton, Chancellor. The facts appear in the opinion of the court. Two questions are presented by the record for adjudication : 1. Is the complainant, Thomson, a creditor whose debt was existing at the time of the conveyance. 2. Were the conveyances fraudulent? An examination of the evidence will show that these two questions become merged into one, for the complainant asserts that the alleged payment of his debt, set up by the defendant, was really but a part of a scheme conceived by the defendants for the purpose of defrauding him. What relationship exists between the parties to these transactions? Mrs. Hester is the debtor’s wife, Smith his intimate friend, and Barber his brother-in-law. The pecuniary condition of the defendant is material, and it may be safety said that at the time of these transactions he was overwhelmed with debt. In this condition of affairs, Hester separated his debts into two classes — those which were moral obligations and those which were not. Of the first were the debts to his wife, his brother-in-law, and his intimate friend. Thomson’s claim was one of the immoral obligations. To pay the former and evade the latter class the conveyance was agreed to be made. Hester having reached this conclusion, his wife insisted on a settlement, and he sat down to make, for the first time in his life, a written statement of the amount due her. This could have but one result. No man in his condition, with creditors holding large claims which were not moral obligations, and pressing for payment, ever came out of a settlement with his wife other than bankrupt. Hester was found indebted to his wife $19,614.25, and, as a memento of the perfect fairness of the transaction, a written testimonial was drawn up and signed; it was also, sealed — probably to insure it a legal as well as moral consideration. The amount of his moral obligations having been reached, Hester conveyed all of his property to Barber, for the payment thereof, but, with a want of his former care, failed to express the trusts in the deed, or even to describe most of the property conveyed,except in general terms. This deed contains the false recital that its consideration was $23,000, and is on its face an absolute conveyance. The conveyance to Barber, trustee for Mrs. Hester, being fraudulent and void as to existing creditors, Hester wanted a bona-fide debt of his own to sue himself with. Incident to the $6,000 Thomson debt was the right to attack the conveyance. So, Hester set about transforming Thomson from a prior into a subsequent creditor. It was necessary to have a , name to represent the parts which a third person was supposed to act, so he took the name of Smith — a convenient name — which also appertained to his commission merchant and confidential friend. The face of the account of Smith & Co. against Hester shows that Smith began to waver a little in his faith in Hester’s paying him, for, on the same day that he charges up the Thomson note, $1,481.16, he credits Hester with $1,500 cash paid in, the only large payment in money made by Hester during the whole of the dealings between them. The Thomson note was then indorsed by Smith & Co. to Hester. .Hester proposed and Thomson agreed to take the $1,481.16 note, and a $1,400 note to be made by Hester, for the $6,000 .note which he held against Hester. Thomson then delivered the $6,000 note, and received the $1,481.16 note. The settlement between Hester and his wile is made up largely of items with which he is not chargeable. So that the •conveyance is, at least, partially voluntary, and must be declared, pro tanto, void. Willis v. Oattman, 53 Miss. 721. The marriage of the defendants William and Carrie Hester was in October, 1845. The marital rights of property were, therefore, governed by the act of 1839, as to all personal property in possession of the wife. Garter v. Garter,■ 14 Smed. & M. 59. Under this act the wife had a separate estate in the slaves owned by her before marriage; but the usufruct belonged to the .husband, and could not be taken away by subsequent legislation! Lyonr. Knott, 4 Cushm. 548 ; Cameronv. Cameron, 7 Cushm. 112 ; Oliver. Walton, 7 Cushm. 220. The personal property of the wife being governed by the laws of this state, she held such interest therein subsequent to her marriage as was conferred by the act of 1839. 14 Smed. & M. 99, 130. The real estate being located in Virginia, the rights of the husband and wife thereto were governed by the laws of that state. 14 Smed. & M. 130. Of these' laws this court will take judicial notice. Code 1871, sec. 805. There was no law of Virginia changing the property rights of the husband in his wife’s realty, and his interest was, therefore, governed by the common law. Hester, then, was entitled to the rents of the land and to the hire or use of the slaves, and any promise to paj the wife for the same would bq-nudum pactum. The defendants do not set up any such contract — only a general . understanding that the separate property of the wife should go to her children. But even if the property had been the separate estate of Mrs. Hester, Hester was liable to her only for the income for one year after the receipt of the same. Code 1857, p. 337, art. 28. Thomson was evidently sacrificed as an incident to the main design of defeating all the creditors. Danger was to be apprehended from Thomson’s claim so long as he had the right to attack the Barber conveyance; and, that conveyance being void as to existing creditors, it was desirable to strengthen it by a judicial sale. There is no question in this case about subsequent creditors; the consideration for the $1,400 note is admitted to antedate the conveyance. The question is whether Smith and Hester confederated to defeat Thomson of the right incident to his claim to attack the fraudulent conveyance; Hester represented to Thomson that he was taking up the $6,000 note, and giving for it the Smith claim and the $1,400 note. Nothing was said to Thomson about a sale to Smith; but the indorsements on the $1,481.13 note indicated to him that Hester had bought it from Smith & Co. and indorsed it to him. Thomson could draw no other inference ; and to permit Mrs. Hester now to claim that it was a sale to Smith & Co. would be to allow her to set up a fraud devised to protect her fraudulently-acquired title. In one of these fraudulent assignment cases the court says (in Johnston v. Lane, 11 Gratt. 568), “ Where the note was given for a pre-existing debt, that fact and the commencement of the debt may be shown in evidence.” The right to attack a fraudulent conveyance by the debtor is an incident of the debt. The change in the form of the debt does not destroy that right. If the note on which the judgment is founded be for a consideration which antedates the fraudulent conveyance, the bill can always be maintained. A scaling of the original debt, payment of half of it as scaled, and giving a new note in renewal of the other half, cannot destroy the right incident to the original, debt to attack a fraudulent conveyance by the debtor. The sale of the $6,000 note by Thomson to Smith is a mere pretense. Thomson did not design to make any such transaction. Hester did not inform him that such was the arrangement; but this fact of a sale, if a fact, was concealed by Smith and by Hester from Thomson. But the truth is that neither Smith nor Hester understood it at the time as a sale to Smith. Archer and Thomson, and the books of Smith & Co., and the indorsement of the $1,481.13 note by Smith & Co. to Hester, and Hester’s subsequent indorsement thereof in blank, and all the other admitted facts, show that the transaction was with. Hester, not with Smith, and the $1,400 note was a part renewal. “ No change of the evidence of the debt’s existence can exert any influence on the rights of the parties.” Moore v. Spence, 6 Ala. 506. See, also, Blue v. Penniston, 27 Mo. 272 ; Oausler v. Salliss, 54 Miss. 449 ; Lowry v. Fisher, 2 Bush, 74; Gardner v. Baker, 25 Iowa, 348 : Grover v. Wake-man, 11 Wend. 202 ; McLaughlin v. Bank, 7 How. 228 ; Cook v. Ligón, 54 Miss. We do not argue that a change in the form of the debt — as, from an account to a debt, or from an old note to a new note — after a fraudulent conveyance will defeat the right of the creditor, or his assignee, to attack such conveyance. But we do contend that by Thomson’s assignment of Hester’s old note to Smith & Co., for value, on October 18th, Thomson ceased to be a creditor of Hester as to the old debt, and when afterwards, on November 16th, Hester gave Thomson his note for $1,400 (if a debt at all), it was a new debt, and not a renewal pro tanto of the old. 41 Miss. 620; 22 Md. 391; 5 Iowa, 72; Story on Prom. Notes, 404-408. To Smith & Co. belonged the whole of the old debt, with every right, legal and equitable, that could be predicated on it. They had acquired it by purchase from Thomson for a valuable consideration. At the time Hester gave the $1,400 note, Thomson having transferred the old note to Smith & Co., it was not in the power of Thomson or Hester, or both, by any contract or agreement or note, to reserve to Thomson (as against other persons) any equity he might have had against the property before he transferred the old note to Smith & Co. Again, Thomson’s purpose in this suit is fraudulent. When Thomson sold the old note to Smith & Co., they and Mrs. Hester owned the property involved in this suit. The joint concern for farming purposes was supplied by Smith & Co., merchants, and conducted by William Hester, agent, and in that name. It owed Smith & Co. With Mrs. Hester’s concurrence, Smith & Co.’ bought the debt, charged its price to the joint concern, and Hester, as he agreed, confessed judgment for the whole balance as security to Smith & Co. All this Thomson knew when he sold the old note to Smith & Co., and when Hester made the $1,400 note to him. He now says that when he sold to Smith & Co., Hester had promised him some indemnity for his losses, and afterwards gave him the $1,400 note on that promise, and promised to pay it when he was able. Hester denies the promise before sale to Smith & Co.; says that after the sale, at Thomson’s request, he made the note, and told Thomson he would pay it if he ever made money enough, but he had nothing then ; neither Smith & Co. nor Mrs. Hester ever heard of that note until long after. If, therefore, Thomson attempts to make that note more than a personal debt from its date, upon it to claim the equities of a debt existing before the sale of the old debt to Smith & Co., and on that ground he attacks Smith & Co. and Mrs. Hester, it is a fraud on them. It has doubtless defeated one object of the purchase — to avoid a lawsuit. But 'it is argued that this purchase of his note was part of the fraud. There is no ground for it; but, if it were true, Thomson knew of the sale of March 20, 1869, and of Hester’s indebtedness to Smith & Co. and to Barber, and he proves that he sold the old note to Smith & Go. for the very purpose of Hester’s confessing judgment on it, and on a contract in which that confession of judgment was a very material part of the contract. He who knows a fraud is going on, and by contract aids it, is not damaged by the fraud. As to the ownership of the money and slaves, the corpus of the property received in Mississippi from her father’s estate, after her marriage in 1845, the act of 1839 secures to her all such property, real and personal. Hutch. Code, 496. It, however, by clause 4, gives to the husband control and management of her slaves, and the receipt of the proceeds of their labor. But the act of 1846 repeals clause 4, and provides that the products and proceeds of the labor of the slaves shall inure to her sole and separate use and benefit. Hutch. Code, 498. And the act of 1857 secures to the wife every species and description of property, real and personal, and all moneys, rights, and credits. Code 1857, p. 335, art. 23. It also secures to her the products, profits, and income of either personal or real, estate, and further provides that if the husband buy property with her money he shall hold it as trustee for her. Code-1857, art. 24, p. 336. And the act of 1867 enacts that if the husband convert to his own use the wife’s property, it is a preferred debt. Code 1867, p. 727. These acts are decisive of Mrs. Hester’s right to the money and property when they came to her or her husband — decisive as to his liability to her for her monej'' or property which he converted to his own use — even if there had been no contract between him and her; but in this case there was a contract. In the settlement of March 20, 1869, there was accounted for by Hester neither rents, profits, nor income received by Hester that had arisen from Mrs. Hester’s property, but simply a debt or liability of Hester to his wife, really on a contract; but if it were not on a contract, it would be on an implied promise. Under an agreement with the wife, Hester got the money for his own use (not hers), and agreed to pay interest on it; that was a loan, and created simply an interest-bearing debt. Under the agreement he got the labor of hey slaves for his own use (not hers) to work on his farms, he to secure for himself (not her) the profits and income of their labor, and he agreed to pay hire for them ; that was a hiring, and created simply a debt for hire from year to year. Hester was entitled to all the profits and income from both money and slaves ; she, only to her debts and interest. To such a liability the proviso to article 28 on page 237 of the Code of 1857 does not apply. Hester’s liability is just the same as if he were not her husband ; he is liable for a debt and interest, not for the rents, profits, and income of his wife’s estate received by him. If he did not make a dollar profits out of her property, he is liable for the debt and interest; if he made a hundred per cent, he was only liable for the debt and interest. The said proviso does not apply to Mrs. Hester’s debt against her husband, and the liability of her husband therefor was not annulled or limited thereby. On the question whether Thomson had the right to attack the conveyance, argued that, while Hester does not express his meaning clearly, Thomson, by no means, in view of the fact of the transfer to Smith & Co., explains how his claim remained the old debt, with its form simply changed. M. J. Smith, Thomson’s wituess, explains the matter with sufficient clearness. Thomson owed Smith & Co. a large note, and William Hester owed Thomson a $6,000 note, which antedated the conveyance. Smith & Co. bought the Hester note from Thomson, giving Thomson in exchange his own note. It was agreed that Hester was to confess judgment on the note in favor of Smith & Co., which was done. In the fall after the conveyances Hester gave Thomson a new note for $1,400. Hester’s explanation is that the consideration or reason for giving the note was that Thomson had not fared well in the exchange. It seems to me clear that Smith & Co. became the holder's and owners of the Hester note; it merged in the judgment; thej owned the judgment, and, I presume, still own it. Thomson ceased to have any interest in the Hester note assigned by him. Whether Thomson made a good or a bad trade with Smith & Co. in getting up his own note, was no affair of Hester’s. Hester owed Thomson nothing, and there was, consequently, no consideration for the note. There was no benefit or advantage arising from the new transaction known to the law as a valuable consideration. It was, in any possible view, a new debt, coming into existence for the first time at the date of the $1,400 note. It could not have been part of the old debt, for the whole of that debt at the time was existing, and owned by Smith & Co. I can see no possible connection between the new debt and the old debt which can give Thompson the status of a creditor holding a debt contemporaneous with the conveyance. Even if the evidence was conflicting on this point, the conclusion of fact reached by the Chancery Court would be presumed tobe correct, and would not be set aside unless clearly wrong.