Supreme Court of United States.
*307 Messrs. G.W. Paschall, Senior and Junior, for Moore.
Mr. C. Robinson, contra, for the Creditors.
*310 Mr. Justice SWAYNE delivered the opinion of the court.
These are cross-appeals, in equity, from the District Court of the United States for the Western District of Texas.
The appellants, Clements and Sheldon, are judgment creditors of the defendant, James Nicholson, and filed the original and amended bills, found in the record, to set aside, upon the ground of fraud, the sale by Nicholson to the defendant, Moore, of Nicholson's entire stock of merchandise, and the conveyance by Nicholson to Moore, and by Moore to Rebecca H. Nicholson, James Nicholson's wife, of certain lots in the town of Bastrop described in the proceedings.
The District Court adjudged the sale of the merchandise to be fraudulent and void; and dismissed the bill as to Mrs. Nicholson and the lots.
We are met at the threshold of the investigation by the objections that leave was not given to file the amended bills, and that there is no replication in the case. Hence it is insisted that our examination is to be confined to the original bill and answer, and that we cannot look beyond them. We find in the record a sufficient replication, though it was not filed until after a part of the testimony had been taken. But if there were none, there are two sufficient answers to both *311 of the objections. They were not made in the court below. They were thereby waived, and cannot be taken here. They are also within the provisions of the statute of 1789, upon the subject of jeofails.[*]
The goods were sold on the 7th of July, 1851. After satisfying a debt due to House out of the stock, Nicholson determined, under the advice of Larkins, to assign the residue to Moore for the benefit of his creditors. Moore was applied to accordingly. He was told by Nicholson that his object was to secure his creditors, and that unless the assignment was made his entire means would be absorbed by a few of his creditors in New York, to whom he was most largely indebted; to the exclusion of his home and other debts. Moore promised to consider the subject. An assignment was subsequently drawn. Before it was executed Moore made the purchase. The terms were the cost in New York, less 20 per cent. The goods amounted to $6310.35. Moore gave his notes, amounting in the aggregate to that sum. At what times they were payable respectively, and whether they bore interest, does not appear in the case.
The laws of Texas permitted a failing debtor to prefer creditors according to his election.
We find here none of the badges of fraud mentioned in Twyne's case.
The sale was openly made; there was an immediate change of possession; the price agreed to be paid was fully as much as the goods were worth. Moore lost upon them. All the notes given by Moore, except three of $500 each, were applied in payment of Nicholson's debts.
On the other hand, Nicholson was insolvent, and Moore knew it. He knew also that it was Nicholson's purpose to hinder and delay the complainants. It was easy to convert the notes and place the proceeds beyond the reach of his creditors. The same process as to the goods was more difficult. If Nicholson intended a fraud, Moore must have known he was giving him facilities in that direction. One *312 of the three notes mentioned was sold by Nicholson at a large discount. The other two were delivered by Mrs. Nicholson to Moore in payment for the lots in controversy.
It remains to consider the law applicable to this state of facts.
The statute of the 13th Elizabeth has been substantially enacted in Texas. The same legal principles apply there in this class of cases as in the other States where similar statutory provisions exist. As was remarked by Lord Mansfield, in Cadogan v. Kennett,[*] the common law, without the statute, would have worked out the same results. A sale may be void for bad faith though the buyer pays the full value of the property bought. This is the consequence, where his purpose is to aid the seller in perpetrating a fraud upon his creditors, and where he buys recklessly, with guilty knowledge. When the fact of fraud is established in a suit at law, the buyer loses the property without reference to the amount or application of what he has paid, and he can have no relief either at law or in equity. When the proceeding is in chancery, the jurisdiction exercised is more flexible and tolerant. The equity appealed to while it scans the transaction with the severest scrutiny looks at all the facts, and giving to each one its due weight, deals with the subject before it according to its own ideas of right and justice. In some instances it visits the buyer with the same consequences which would have followed in an action at law. In others, it allows a security to stand for the amount advanced upon it. In others, it compels the buyer to account only for the difference between the under price which he paid and the value of the property. In others, although he may have paid the full value, and the property may have passed beyond the reach of the process of the court, it regards him as a trustee, and charges him accordingly. Where he has honestly applied the property to the liabilities of the seller it may hold him excused from further responsibility. The cardinal principle in all such cases is, that the property of the debtor shall not *313 be diverted from the payment of his debts to the injury of his creditors, by means of the fraud.[*] In the case before us, we think that Moore should be held liable for the note sold by Nicholson, and the two delivered by his wife to Moore in payment for the lots, amounting in the aggregate to $1500, with interest from the date of the sale. We have not adverted to the letter of Nicholson of the 18th of July, 1853, and the accompanying document, nor to his declarations made after the sale. Besides being in direct conflict with his answers under oath, they are inadmissible against Moore, and can in nowise affect the conclusions as to this branch of the case at which we have arrived.
The real estate in controversy is thus described:
"A block of lots in the town of Bastrop, in said State of Texas, known in the plan of said town as block No. 95 (ninety-five), cast of Main Street; fractional lot or block No. 4 (four), east of Main Street, and lots No. 65 (sixty-five), No. 62 (sixty-two), and 70 (seventy) in block 11."
The property was conveyed by Nicholson and wife to Moore by deeds bearing date on the 13th of June, 1853. The considerations expressed amount in the aggregate to $560. The bill and amended bills charge that the deeds to Moore, and the sale by Moore to Mrs. Nicholson, were without consideration, and made to defraud the creditors of Nicholson.
The answer of Moore alleges that he bought the lots in good faith, and paid $860 for them; afterwards he agreed they might be repurchased for what he gave, with interest at the rate of ten per cent. Except block 95 and fractional lot 4 he sold them to Mrs. Nicholson; she paid him, as he understood, out of her own separate means, and she subsequently procured a decree of the District Court of Bastrop County that he should convey a good title to her, which he *314 was ready to do. He alleges further that block 95 had been sold to pay a debt of Nicholson.
The answer of Nicholson is the same as the answer of Moore, in regard to the sale of the lots to Moore and the subsequent agreement. In regard to the sale to Mrs. Nicholson, he states that when he married her, she had a considerable amount of money belonging to her and to a child by a former husband; he borrowed from her from time to time until the amount exceeded $500; he transferred to her one of the notes of Moore for that amount; she bought the lots from Moore and paid for them with that note and other separate means belonging to her. He makes the same statement as Moore in regard to the decree of the District Court of Bastrop County, and the sale of block 95. He says the premises are in possession of his father under an arrangement with Mrs. Nicholson.
Mrs. Nicholson answers that when she married Nicholson she had about $1000 in money, which she lent to him, taking in lieu two notes of Moore of $500 each; some time afterwards she delivered the notes to Moore in discharge of a mortgage upon the premises, which Nicholson had given to him; that Nicholson has never repaid to her any part of the money which he borrowed; she has realized nothing from the loan but the lots in question; Nicholson is utterly insolvent; she has no hope of getting any other indemnity, and that the value of the lots does not exceed the amount of the loan. She insists upon the good faith of the transaction, and denies that any wrong or fraud was intended upon the complainants or any other creditor of Nicholson.
The complainants waived an answer, under oath, by this defendant. Her answer is nevertheless verified by an affidavit. This was proper. It was her right so to answer, and the complainants could not deprive her of it. Such is the settled rule of equity practice where there is no regulation to the contrary.[*]
The decree of the District Court of Bastrop County is *315 found in the record. It was entered by the agreement of counsel. It required Moore to execute to Mrs. Nicholson a full and complete title to lots 62, 65, and 70. It is silent as to block 95, and ordered lot 4 to be sold to satisfy the claim of Scott, a defendant in that proceeding. Neither party took any testimony touching this part of the case. It stands upon the bills and answers.
No attempt is made to explain the contradiction of the answers of Moore and Nicholson by the deeds as to the amount of the consideration alleged to have been paid by Moore for the lots. The answers of both are silent as to the mode of payment. This rendered disproof of the allegation of the amount difficult, if not impossible. The facts disclosed create a strong doubt of the integrity of the transaction between Moore and Nicholson, and threw on Moore the duty of making a full explanation, and the burden of proof to sustain it.[*] We feel constrained to resolve the doubt against the validity of the sale. The striking discrepancies between the answers of Mr. and Mrs. Nicholson need no remark. She admits that she paid for the lots by delivering up to Moore notes which he had executed to Nicholson. This makes a primâ facie case against her. She adds that the notes were transferred to her by Nicholson in consideration of money she had lent to him. Of this there is no proof. It is an established rule of evidence in equity, that where an answer which is put in issue, admits a fact, and insists upon a distinct fact by way of avoidance, the fact admitted is established, but the fact insisted upon must be proved; otherwise the admission stands as if the fact in avoidance had not been averred.[] The application here of this principle is decisive. There is nothing to neutralize the effect of the admitted fact, that the property was paid for with notes which had belonged to Nicholson. There is not the slightest proof of any consideration for the transfer of those notes by *316 him to her. The complainants have a right to follow the fund into any property in which it was invested as far as it can be traced.[*]
The decree of the court below is silent as to lots 4 and 95. There is no competent proof in the record sufficient to exempt them from the claim of the complainants. If others have acquired paramount rights, it must be shown elsewhere in another proceeding.
The decree as to both branches of the case is, in our judgment, erroneous. It is therefore reversed. The case will be remanded to the District Court with instructions to enter a decree
IN CONFORMITY WITH THIS OPINION.
[*] Brightly's Digest, 41.
[*] 2 Cowper, 432.
[*] Sands and others v. Codwise and others, 4 Johnson, 536; Boyd and Suydam v. Dunlap and others, 1 Johnson's Chancery, 478; Webb v. Brown and others, 3 Ohio State, 246; Sexton v. Wheaton, 1 American Lead. Cases, 50, note; Twyne's case, 1 Smith's Leading Cases, 34, notes; Roberts on Fraudulent Conveyances, 520, 527.
[*] Armstrong et al. v. Scott et al., 3 Greene, 433
[*] Piddock v. Brown et al., 3 Peere Williams, 289; Wharton v. May, 5 Vesey, 49.
[] Gresley's Evidence, 13; Hart v. Tenyke and others, 2 Johnson's Chancery, 60.
[*] Oliver v. Piatt and others, 3 Howard, 401.
