Hurwitz v. Hurwitz

Decision Date22 June 1943
Docket NumberNo. 8342.,8342.
Citation78 US App. DC 66,136 F.2d 796
CourtU.S. Court of Appeals — District of Columbia Circuit

Mr. Russell Hardy, of Washington, D. C., for appellant.

Mr. William R. Lichtenberg, of Washington, D. C., with whom Mr. Samuel Barker, of Washington, D. C., was on the brief, for appellee.

Before GRONER, Chief Justice, and ARNOLD, Associate Justice.

ARNOLD, Associate Justice.

This is a suit by the appellee, Dorothy Hurwitz as Administratrix of the Estate of her deceased husband, against the appellant, Michael Hurwitz, the brother of the decedent. The complaint sought to recover from Michael Hurwitz certain sums of money, stock, and a mortgage note which were alleged to be the property of the estate. The defense was that part of the money represented the proceeds of the sale of real estate which Michael Hurwitz had purchased from his deceased brother, that the mortgage note had also been purchased, and that the balance of the property was a gift from his brother.

The evidence consisted largely of the testimony of interested parties and their relatives. It was in direct conflict. With respect to the proceeds of the real estate transferred to Michael Hurwitz the widow testified as to conversations with him tending to prove that the transfer was not a sale but a pretended conveyance for the purpose of putting the property beyond the reach of a former wife who claimed alimony. There was some doubt as to how Michael Hurwitz had acquired possession of the rest of the property. On some items he made conflicting statements. Decedent had left a wife and one child, and the property claimed by Michael Hurwitz as a gift was substantially everything that decedent owned. Thus the case for the appellee was aided by the inference that normally a husband does not desire to deprive his wife and child of all interest in his property.

The case was submitted to the jury on special interrogatories agreed to by counsel, and the verdict was in favor of the administratrix on most of the items of property. Since there was ample evidence to support that verdict, a reversal on that ground will be denied.

A more serious question is whether the administratrix can recover the proceeds of the real estate on behalf of the heirs in the face of evidence that the transfer which she seeks to set aside had the illegal purpose to defeat creditors. The administratrix argues that Section 12-403 of the District of Columbia Code (1940) authorizes such proceeding. That section applies to executors, administrators, receivers, assignees or trustees of an estate or of the property of an insolvent estate, corporation, association, partnership or individual. It permits such officers to stand in the shoes of persons interested in the estate, and to set aside for the benefit of such persons transfers which they themselves could have attacked. However, the persons for whose benefit the transfer is sought to be set aside can get no increased substantive rights because an administrator is bringing the suit. In this case the administratrix seeks not to benefit creditors but to set aside a pretended gift, for the benefit of herself and child as heirs. But the heirs get no additional rights because their interest is represented by the administratrix. The statute is procedural.1 The rights of the heirs here depend on substantive law.

According to the decided weight of authority a grantor cannot recover property from a grantee who received it in fraud of creditors even though there was no consideration and no intention to make a gift.2 Most of the cases hold that when the grantor dies his heirs are in no better position to enforce a resulting trust arising from a fraudulent conveyance.3 Since this rule permits the unjust enrichment of a fraudulent trustee it is subject to many confusing exceptions. For example it has been held that where the purpose to defraud creditors has failed of accomplishment the grantor can recover the property. It has also been held that if the grantor acts promptly he may set aside the transfer, because in this way he is preventing the accomplishment of his own illegal purpose.4

Professor Scott in his treatise on trusts criticizes the rule in the following language:

"The courts, it is believed, have been somewhat too ready to deny relief to the settlor, without much consideration of the injustice which results from permitting the trustee to keep the property. There is no doubt that as between the parties it is more just to require the trustee to surrender the property to the settlor than to permit the trustee to keep it. When the trustee is permitted to keep it, it is on the ground that there is a public policy against recovery by the settlor. The only justification for such a policy would seem to be that it might discourage others from creating trusts for such purposes. The rule denying relief to the settlor, however, seems to be so arbitrary in its operation that its value as a preventive measure may well be doubted.

"In denying relief to the settlor where the trust has failed for illegality the courts have not ordinarily considered with much care the question of public policy involved. They have frequently contented themselves with the quoting of one or another of the appropriate maxims, such as in pari delicto potior est conditio defendentis or ex dolo malo non oritur actio."5

It is difficult to answer this criticism even in a case where the grantor himself attempts to set aside the conveyance. But where, as in this case, the heirs who are not responsible for the transfer seek to enforce the resulting trust, there seems no reason for following this rule other than to visit the sins of the fathers upon their children. For that reason the Supreme Court of Errors of Connecticut has repudiated the majority doctrine in a decision which allowed an administrator to recover property for the benefit of the heirs even though it had been transferred by the decedent in order to put it beyond the reach of attachment.6 Speaking through Chief Justice Maltbie, the Connecticut court said: "The question really is, should the turpitude of the deceased be visited upon his heirs and distributees; because equity will not listen to him on account of his own evil doings, will it shut its doors also to those who, presumably, had no part in that evil, and so refuse to them their substantial rights? The defendant has no right to hold the property, and to us there seems no reason why persons whose hands are clean should be precluded from claiming it merely because their ancestor soiled his own hands in the transaction. To hold that they cannot assert a right to the property would make the principle invoked an instrument of injustice, which should not be done. Miller & Lux v. Enterprise Canal & Land Co., 142 Cal. 208, 212, 75 P. 770, 100 Am.St.Rep. 115."7

We accept the decision of the Supreme Court of Connecticut as the better rule. A court should not enrich a fraudulent grantee at the expense of parties not responsible for the original grantor's attempt to avoid creditors. The only rational basis for refusing to enforce a resulting trust in favor of a fraudulent grantor is that the grantor himself does not come into court with clean hands. But it does not follow that the administratrix or the heirs of his estate have unclean hands. The effect of the judgment for the appellee will place her husband's estate in her hands as administratrix subject to...

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