Scott v. McMillen

• Decision Date: 17 June 1822
• Citation: 11 Ky. 302
• Parties: Scott v. M'Millen.
• Court: Kentucky Court of Appeals

11 Ky. 302

Scott v. M'Millen.

Court of Appeals of Kentucky.

June 17, 1822

1. The general rule is, that where the complainant's demand is merely legal, and his resort to equity is for the purpose of setting aside fraudulent conveyances of his debtor's property, he must, before filing his bill, obtain a judgment at law. 1.

2. But this rule does not apply, in this country, to cases where the debtor resides or has removed out of the commonwealth, so that no judgment can be obtained against him. In all such cases, resort may be had to chancery in the first instance. 1.

3. Where a suit in chancery has been instituted to subject lands fraudulently conveyed, to the payment of a debt, it gives the complainant a lien on such lands, commencing with the lis pendens. 2.

4. In such case, the lien of the creditor first commencing suit can not be defeated by a voluntary setting aside the fraudulent conveyance, the grantee's re-conveying to the grantor, and the grantor's then mortgaging the land to other bona fide creditors, whose debts were due before suit was commenced. 2.

5. The pendency of an injunction against conveying, & c., is not necessary, to give to the complainant creditor this preference and lien. 2.

OPINION

THE COURT.

Statement of the case.

Scott sold to Samuel M'Millen merchandise to the amount of about $18,000, and received from him several obligations payable at different periods. At the time of the purchase M'Millen resided in Cynthiana in this state, and afterwards removed, with the merchandise, to Kaskaskia. But prior to his departure from this state, M'Millen conveyed, by several deeds and bills of sale, his lands slaves, & c. not carried with him, to his brother, Kennedy M'Millen; and he left with Lewis Day, one of his clerks, and his brother Kennedy, the collection of debts due him.

Part of the sale money for the merchandise having become payable, and possessing no means of coercing payment by an action at law, Scott exhibited his bill in chancery, in the Harrison Circuit Court, against Samuel M'Millen, his brother Kennedy, and Day, to set aside the deeds and bills of sale from Samuel Kennedy, which are alleged to have been fraudulently executed, to defeat the creditors of Samuel from the collection of their just demands, and to attach in their hands, respectively, the effects and money appertaining to Samuel, and to enjoin and restrain them from conveying the lands or paying over the effects, & c., and for general relief, & c. An injunction was accordingly granted.

Samuel M'Millen afterwards returned to this State, and Scott, whilst his suit in chancery was pending, commenced actions at law against him on the obligations.

Samuel M'Millen answered the bill; and, on his motion, the court, at the March term, 1818, dissolyed the injunction which had been granted Scott. At the same term, on a motion made by M'Millen for that purpose, the court made an order compelling Scott to elect, either to proceed at law or in chancery, to establish his demand against M'Millen; but gave him permission, if he should elect to proceed at law, still to pursue his suit in chancery, to show that the deeds to Kennedy M'Millen were fraudulent, & c.

Scott accordingly elected to proceed both in chancery and at law, as directed by the court; and at the same term recovered judgments at law, and sued out executions thereon, and delivered them into the hands of the sheriff; but nothing was made thereunder.

The injunction which had been dissolved, was afterwards, by an order of a judge of this court, reinstated. But, before the injunction was reinstated, Kennedy M'Millen re-conveyed to Samuel, all the estate alleged to have been fraudulently conveyed to him, and received back the notes which he had given Samuel for the property. Samuel M'Millen, at the same time, executed to other creditors deeds of mortgage on the same property; and those creditors commenced suits in chancery, to foreclose the equity of redemption.

Scott then amended his bill, making the creditors to whom the mortgages were executed, parties; alleging that some of their demands were unjust, and insisting that as those mortgages were given whilst his suit was pending, the property should be subjected to the payment of his demand, & c.

All the defendants answered the bill. The creditors to whom the property was mortgaged, allege, that their demands, which the mortgages were intended to secure, are just, and existed prior to the conveyances from Samuel to Kennedy M'Millen; and insist, that having equal equity with Scott, they ought not to be defeated of their legal advantage, & c.

Samuel M'Millen, by his answer, denies that the conveyance was made by him to Kennedy, to defraud his creditors; but allege, that being about to remove the merchandise which he purchased of Scott, without the state, he executed the deeds of conveyance, for the purpose of preventing a sacrifice of his property in his absence.

Kennedy M'Millen also denies the conveyance to him to have been made with a fraudulent intent; but alleges that his brother being about to leave the state, he made the purchase and gave his obligations for payment, and admits it to have been understood, that if his brother should again return to the state to live, the contract was to be cancelled.

On a final hearing, the court decreed the deeds of conveyance from Samuel to Kennedy M'Millen, to be fraudulent, and subjected them to the payment of Scott's costs; but also decreed the demands for which the mortgages were given to the other defendants, to be just, and their liens, created by the mortgages, to be bona fide; and the property having been exhausted by sales decreed under those liens, the bill was dismissed, as to those defendants.

That all the defendants claiming to be creditors of Samuel M'Millen, were in fact creditors, as well as Scott, when the deeds were executed by Samuel M'Millen to his brother, and that those deeds were made with intent to hinder and delay the creditors of Samuel in the collection of their just demands, can not be seriously doubted. The fraudulent intent with which those deeds were executed, is incontestably established, and the evidence proves satisfactorily the demands of each creditor. It was, therefore, evidently correct, for the court below to pronounce those deeds fraudulent, if the question of fraud was properly presented for determination. Generally speaking, creditors must show themselves to be such, by obtaining judgment at law, before they will be allowed to apply to a court of chancery to investigate any fraud alleged to have been committed by their debtor, in alienating his property.--1 Vernon 398, 3 Atk. 200, Roberts on Frauds, 37, note p.

The necessity of thus first obtaining judgment at law, before application is made to a court of chancery, does not, however, arise from the want of jurisdiction in the court of chancery to investigate fraud; but it results from the circumstance of the demand which constitutes the creditor, being cognizable at law, and the necessity of that demand being established by the determination of a court, acting within its legitimate sphere; and whenever the demand is so established, the court of chancery, acting within the acknowledged limits of its jurisdiction, will search out the fraud, and clear away all obstructions to the effectual execution of the judgment at law.

1. Notwithstanding, however, it may, in the general, be necessary for the creditor to establish his...