Blair v. Smith
| Decision Date | 06 March 1888 |
| Docket Number | 13,007 |
| Citation | 15 N.E. 817,114 Ind. 114 |
| Parties | Blair v. Smith et al |
| Court | Indiana Supreme Court |
From the DeKalb Circuit Court.
Judgment reversed, with instructions to overrule the demurrer to the complaint.
J. E Rose, J. W. Baxter and W. L. Penfield, for appellant.
J. I Best, C. A. O. McClellan and D. A. Garwood, for appellees.
The facts, as stated by the first paragraph of the complaint, are these: Norman Smith was the debtor of Benjamin Blair in the sum of one thousand dollars, for which judgment was recovered. Executions were issued and returned no property found. Prior to the time the judgment was rendered, the wife of Norman Smith, Julietta, owned eighty acres of land, and as part of the purchase-money she agreed to pay liens on the land amounting to the sum of one thousand dollars. This sum the husband paid, although he then had no property subject to execution, as his wife knew. He paid the money with the fraudulent intent of cheating his creditors, of which fact his wife had knowledge, and to enable him to defraud his creditors colluded with him to effect that purpose. Since it was paid she has sold the land, and has, as the complaint charges, possession of the avails of the sale, and has in her possession one thousand dollars above the value of her interest, as the trustee of his creditors.
The appellant's counsel, with much force and plausibility, argue that, as Mrs. Smith occupies the position of a fraudulent grantee, and colluded with her husband to defraud his creditors, she is liable, in the character of a trustee, to account to them for the amount over and above the value of her interest in the land.
It is now settled, whatever of error may have crept into some of our decisions, that a judgment creditor has a lien only on the interest of the debtor in the land, and that against such a creditor prior equities will prevail. Glidewell v. Spaugh, 26 Ind. 319; Monticello, etc., Co. v. Loughry, 72 Ind. 562; Hays v. Reger, 102 Ind. 524, 1 N.E. 386; Foltz v. Wert, 103 Ind. 404, 2 N.E. 950, and cases cited; Wright v. Tichenor, 104 Ind. 185, 3 N.E. 853, and cases cited; Wright v. Jones, 105 Ind. 17, 4 N.E. 281 (28); Heberd v. Wines, 105 Ind. 237, 4 N.E. 457 (242); Taylor v. Duesterberg, 109 Ind. 165, 9 N.E. 907.
It is clear, therefore, that the interest that Mrs. Smith had in the land is superior to the appellant's claim. We do not, however, understand the appellant's counsel to controvert this doctrine, but their position is, that the creditor has a right to charge her with the money in her hands received from the sale, after deducting the value of her interest in the land. The husband, as against her, acquired no interest in the land, but as against creditors the money belonging to him which went into the land can be reached in equity, because, as the complaint alleges, the wife put it there to defraud creditors.
Whether the husband could, or could not, impair the interest of the wife if she had not actively participated in the fraud, is not the question; but the question is, can the money that went into the land by the fraud of both husband and wife be followed by the creditors of the husband? This is the question the record presents. We think it clear that in equity the creditors may pursue the money into the land. Suppose, for example, that the price of the land was two thousand dollars, and that the wife paid only ten dollars of this sum, and the husband, colluding with the wife in a fraudulent scheme to defraud his creditors, paid nineteen hundred and ninety dollars, could not a judgment creditor reach the money thus fraudulently put into the land? We are unable to see why the money of the husband may not be subject in equity to the claims of his creditors, in the case supposed, nor can we perceive any difference between the supposed case and the actual one.
The question here is very different from that presented in French v. Sheplor, 83 Ind. 266. In that case the beneficiary sought to secure land bought by the trustee, but partly paid for with trust funds. Here the charge is that the wife colluded with the husband to defraud his creditors, and, to carry into execution their corrupt scheme, she suffered him to use his money in paying for the land. If, at the time the land was purchased, this had been done, no one would doubt that the husband would have acquired an interest in the land which a judgment creditor might subject to the payment of his debt. We can discern no difference between a case where the husband and wife conspire to defraud creditors prior to the purchase of property, and a case where the conspiracy is not formed until after the purchase of the land. Our conclusion on this branch of the case is, that when the husband, pursuant to the corrupt scheme, invested one thousand dollars in the land, he acquired, as against creditors, but not as against the wife, an interest upon which equity will fasten the lien of the judgment, but that the lien did not displace the prior equity of the wife.
If our conclusion is correct, then as long as the wife remained the owner of the land the husband, in equity, and as in favor of a judgment creditor, owned an interest in the land, subject to the lien of the judgment, as against one who had conspired with him for the purpose of defrauding creditors. If this be not true, then a debtor may collude with another to defraud his creditors, and by investing money in the land carry into execution a corrupt scheme, and enable the debtor to evade the payment of his debts. Equity will not permit this.
Approaching the question from a somewhat different point, we arrive at the same conclusion. If the money paid on the price of the land belonged to the debtor, equity would have compelled him to pay it to his creditor, and from this rule he can not escape under cover of a fraudulent collusion with the owner of the land. No one can reap any advantage from a fraud. As the money to which equity gave the appellant a claim went into the land, into the land equity will follow it. "Equity regards that as done which ought to have been done," and upon this maxim rests many of the most salutary rules of equity, and among them that of equitable conversion. It is no more beyond the power of a court of equity to reach the money in the land than it would have been had the money been fraudulently placed in the hands of Mrs. Smith, to be there kept for the corrupt purpose of defrauding her husband's creditors.
Our statute goes very far in condemnation of schemes to defraud creditors, and denounces as void all contracts made for that purpose. Sections 2156, 4920, R. S. 1881. Land fraudulently conveyed is subject to the judgment, by express provision of our statute. R. S. 1881, section 752; Hanna v. Aebker, 84 Ind. 411.
As held in the case cited, where a person purchases or acquires an interest in land, and, for the purpose of defrauding creditors, does not take title, equity will treat that as having been done which ought to have been done, and, in favor of creditors, will treat the purchaser as having title.
Counsel for the appellees are in error in treating Mrs. Smith as the mere debtor of her husband. The complaint does not proceed upon that theory. It proceeds on the theory that, by reason of the fraudulent collusion with her husband, she obtained property which in equity and good conscience should be applied to the debt due from her husband to the appellant. She is not sought to be held as his debtor. She is sought to be held as the trustee of her husband's creditor. It is a principle quite as well established as any in equity jurisprudence, that a grantee who fraudulently accepts a conveyance of land for the purpose of enabling the grantor to defeat his creditors, takes the land as the trustee of the creditors. This doctrine is so well settled that it is scarcely necessary to cite authorities in its support. Eiler v. Crull, 112 Ind. 318, 14 N.E. 79; Eve v. Louis, 91 Ind. 457; Jones v. Reeder, 22 Ind. 111. If, therefore, Mrs. Smith had retained the land, she might undoubtedly have been charged as the trustee of her husband's creditors to the extent of his interest in the land. Whether this would be so if there were no actual fraud we need not inquire, for there was here not only knowledge of the fraudulent intent of the husband, but the wife actively assisted him in carrying into execution his fraudulent purpose by conspiring with him to defeat his creditors. Whatever may be the rule where the wife simply permits her insolvent husband to advance money to pay for her land, the rule in a case like this, where she is a guilty actor in the fraud, is, that she can not defeat the claim of her husband's creditors, although the creditors can not destroy her prior equities. The element of actual fraud we regard as an important one in all the phases of the case. We decide the case as it is presented to us by the complaint, and upon the facts there alleged and admitted by the demurrer, and that case is one of direct positive fraud, and not merely legal or constructive fraud.
We conclude, without hesitation, that, had the wife remained the owner of the land, equity might have charged her as holding it in trust to the extent of the money fraudulently put into it by her husband, and we are now to inquire whether, as to the avails of the sale in her hands in excess of her interest in the land, she can be required to account to her husband's creditor as a trustee. We have already alluded to the doctrine of equitable conversion, and we now apply it to the money in the hands of Julietta Smith. As to the creditors, equity may treat that money as it would have treated the land had the title remained in her. We are not willing to hold...
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