Orendorf v. Budlong

• Decision Date: 08 May 1882
• Citation: 12 F. 24
• Parties: ORENDORF and others v. BUDLONG and others.
• Court: U.S. District Court — Eastern District of Michigan

12 F. 24

ORENDORF and others v. BUDLONG and others.

United States Circuit Court, E.D. Michigan.

May 8, 1882

J. H Campbell, for complainants.

George Woodruff, for defendant.

BROWN D.J.

There can be no doubt of the general jurisdiction of a court of equity to set aside fraudulent transfers of property at the instance of a judgment creditor. Such bills are constantly sustained, notwithstanding there may also be a remedy by ejectment, upon the ground that no remedy is full, adequate and complete which leaves the fraudulent deed outstanding as an apparent cloud upon the title. Never since the case of Bean v. Smith, 2 Mas. 252, decided by Mr. Justice Story, in 1821, has the power of the federal courts to entertain bills of this description been questioned. Bump Fraud. Conv. 508; Pratt v. Curtis, 6 N.B.R. 139; Buck v. Sherman, 2 Doug. (Mich.) 176.

It was insisted, however, that this bill would not lie, because under Comp. Laws, Sec. 4628, it should have been filed within a year after the sale. The material parts of the section read as follows:

'All the real estate of any debtor, including legal and equitable interests in lands acquired by parties to contracts for the sale and purchase of lands, whether in possession, reversion, or remainder, including lands fraudulent conveyed with intent to defeat, delay, or defraud his creditors, and the equities and rights of redemption hereinafter mentioned, shall be subject to the payment of his debts, liabilities, and obligations, and may be levied upon and sold upon execution as hereinafter provided. * * * In case of a levy upon the equitable interest of a judgment debtor, the judgment creditor may, before sale, institute proceedings in aid of said execution to ascertain and determine the rights and equities of said judgment debtor in the premises so levied upon; and that in case of a sale of said premises, after having ascertained and determined the interest of said judgment debtor in the premises so levied upon and sold, he shall, within one year, institute proceedings to ascertain and determine the same, and to settle the rights of parties in interest therein.'

There are two sufficient answers to the complainants' proposition that these proceedings should have been taken within the year:

1. The jurisdiction of this court as a court of equity is uniform throughout the United States, and is unaffected by state laws. The Revised Statutes, Sec. 913, declare the forms and modes of proceeding in suits of equity shall be according to the principles, rules, and usages which belong to courts of equity, as contradistinguished from courts of common law. Under this provision, which is taken from the act of 1792, it has always been held that the jurisdiction and practice of the circuit courts in equity was uniform throughout the United States, and not subject to restriction or limitation by local statutes. Robinson v. Campbell, 3 Wheat. 212; U.S. v. Howland, 4 Wheat. 108; Boyle v. Zacharie, 6 Pet. 648, 658; Nooman v. Lee, 2 Black, 499. It is a natural corollary of this proposition that we are not bound by the decisions of the state courts upon questions of equity jurisprudence. Neves v. Scott, 13 How. 268.

2. The limitations of the sections in question applies only to 'equitable interests,' while the interest of a creditor in the land of his debtor, fraudulently conveyed, is a legal and not an equitable asset. Pulliam v. Taylor, 50 Miss. 555.

That this is the proper constuction to be placed upon this statute is also evident by referring to the section of the Revised Statutes of 1846, from which it was taken. This chapter (chapter 79, Sec. 1) provides 'that all the real estate of a debtor, whether in possession, reversion, or remainder, including lands fraudulently conveyed with intent to defeat, delay, or defraud creditors, * * * shall be subject to the payment of his debts, and may be sold on execution. ' This chapter makes no reference to equitable interests, except the equity of redemption of a mortgagor; and in Trask v. Green, 9 Mich. 358, and Maynard v. Hoskins, Id. 485, it was held that it did not reach the case of lands which a judgment debtor had purchased and caused to be conveyed by the vendor directly to a third person to defraud his creditors, and that such lands could only be reached by a creditor's bill, filed after the return of an execution unsatisfied.

To obviate in some measure the difficulty of reaching equitable interests the statute was amended in 1867 by including legal and equitable interests in lands acquired by the parties to contracts for the sale and purchase of lands. It is obvious that the limitation of the one year within which proceedings may be taken after the sale applies only to those equitable interests, and perhaps those of a mortgagor, and not to the case of lands fraudulently conveyed. This was also the opinion of the supreme court of this state in Cranson v. Smith, 10 N.W. 194.

But the main defence to this case is that this bill should have been filed in aid of the execution and before the sale; the theory of the defendant being that if the judgment creditor waits until the land is sold, and he has obtained his deed, there is a complete and adequate remedy at law in an action of ejectment, and that he can no longer invoke the aid of a court in equity. In support of this proposition defendant relies upon the case of Cranson v. Smith, above cited, recently decided by the supreme court of this state. This case is directly in point. Complainants have attempted to distinguish it from the case under consideration, in the fact that Markham's title was not taken and did not appear of record until after the sale on execution. But the deed from Budlong to his son was the one in controversy. This was taken long before the bill was filed. If this deed was valid, and George Budlong was a bona fide purchaser, then Markham's deed conveyed a perfect title to him, even though he had notice of the levy. On the other hand, if George Budlong was not a bona fide purchaser, Markham, having notice of the levy, could not take a good title from him. Complainants' case, then, must stand or fall with the view taken by this court of the correctness of the ruling in the case of Cranson v. Smith.

This case undoubtedly conflicts with the previous intimations of the supreme court upon the same questions, although the point had never been directly decided. Thus, in Cleland v. Taylor, 3 Mich. 201, which was an action of ejectment by a judgment creditor, who was also a purchaser at the sheriff's sale, to test the validity of a deed made by the judgment debtor, it was assumed, both by the court and counsel, that the right of the plaintiff to have the deed set aside in a court of chancery was unquestioned. So, in Messmore v. Haggard, 9 N.W.Rep. 853, which was a bill by a judgment creditor, who was also purchaser upon execution, to set aside a fraudulent mortgage made by the judgment debtor, it was held that the bill should have been filed before the sale, for the reason that if the judgment creditor could buy with a secret assurance that he was to have an unencumbered title, when others must suppose they were buying subject to the mortgage, this assurance gave him an advantage in bidding to the full amount of the mortgage, and practically put competition entirely out of the question. It was thought to be unfair to the other bidders and to the mortgagee to give him this advantage. 'There can be no equity in permitting him to purchase the lands apparently subject to the mortgage, and then to have its lien annulled afterwards. ' But in delivering the opinion Mr. Justice Cooley draws a clear distinction between that case and one where the judgment debtor has made a fraudulent conveyance of all his interest in the land:

'In those cases,' he says, 'the judgment debtor had conveyed away his whole interest, and any offer to sell on an execution against him necessarily attacked his conveyance. The judgment debtor would understand this, and his grantee would understand it, and take his measures accordingly. So would all persons, who should be inclined to be bidders at the sale, understand it, and all would stand on an equality with the judgment creditor in making bids. No doubt it would be proper for the sheriff expressly to give notice at the sale that the validity of the debtor's conveyance was disputed, but as the offer to sell would be idle and meaningless if the conveyance was not contested, any such notice would be obviously unimportant.'

But in Cranson v. Smith the reservation thus made by Mr. Justice Cooley, (which seems to us unanswerable,) of cases like the present, where all bidders stand upon an equality, is expressly overruled. The reasons for his conclusion are stated as follows by Mr. Justice Marston:

'At the time the levy and sale was made under the execution, complainant, the judgment creditor, had full and ample knowledge of the conveyance from John F. Smith to his wife, the deed having been duly recorded. The complainant did not then, although he had an undoubted right to, file his bill in aid of his execution, and, if the conveyance was fraudulent, have it set aside, thus restoring and revesting the legal title in the judgment debtor, and thus enable intending purchasers to compete with him at the sale. He preferred to leave the matter not only in doubt as to the fraudulent character of the conveyance, but thereby to prevent any person from bidding against him, as purchasers under the levy made and interest sold could not have moved to have the conveyance declared void. The complainant could not thus acquire the title, and then come into a court of equity and ask to have the deed set aside.'

But why cannot a purchaser under an execution sale move...