Sipe v. Earman

• Decision Date: 09 October 1875
• Citation: 67 Va. 563
• Court: Virginia Supreme Court
• Parties: SIPE v. EARMAN & als.

67 Va. 563

SIPE v. EARMAN & als.

Supreme Court of Appeals of Virginia.

October 9, 1875

1. A deed of trust to secure bona fide creditors, which conveys land, horses, cattle, & c., farming implements household and kitchen furniture, growing grain and vegetables, the grantor to retain possession for three years by paying the interest on the debts secured, is not fraudulent per se, though made without the knowledge of the creditors secured.

2. Nor does the execution of the deed pending a suit against the grantor, by a creditor not secured by it, and a short time before the term at which it was probable judgment would be rendered against him render the deed fraudulent.

3. Nor does a provision in the deed, authorizing a sale of the property within the three years at the instance of the grantor, render the deed fraudulent.

4. If there was a fraudulent intent in the grantor in making the deed, (of which there was no evidence,) as it is not fraudulent on its face, and the trustee and creditors secured by it had no knowledge of its execution until it was done they cannot be affected by such fraudulent intent, and the deed is valid as to them.

5. A judgment creditor files a bill to set aside the deed for fraud, and for general relief. Though the deed is held to be valid, the plaintiff is entitled to the surplus after paying the debts secured; and the bill should not be dismissed, but under the prayer for general relief, he is entitled to an account of the debts secured by the deed, and to have a sale of the property.

In September 1869 Joseph Sipe brought a suit in equity in the Circuit court of Rockingham county, to set aside a deed made by Peter F. Earman to secure John Carpenter and others named in the deed, certain debts therein named. The bill states that in August 1867 the plaintiff recovered a judgment in the County court of Rockingham against Peter J. Earman for $1,676.82, with interest and costs. That a short time before said judgment was recovered, the said Peter F. Earman made a deed, by which he conveyed all of his property to John W. Earman, for the ostensible purpose of securing the payment of the debts mentioned in said deed. He charges that the deed was made with the intent to hinder and defraud the plaintiff; that the pretended debts secured in the deed, or a large portion of them, are not bona fide debts; that the deed is fraudulent upon its face, and fraudulent in fact. And he states that Earman had since gone into bankruptcy. And making Peter F. Earman, John W. Earman, the trustee, and the creditors named in the deed, as also the assignee of Earman, parties defendants, he prays that the said deed of trust may be set aside as fraudulent and void, and the property therein conveyed applied to the payment of plaintiff's debt by a sale thereof under a decree of the court; and that he might have such other and further relief as the nature of the case may require and to equity seem meet.

The deed which was filed as an exhibit with the bill, bears date the 7th of May 1867, and conveys to John W. Earman one tract of land of one hundred and seventeen acres, lying in the county of Rockingham, with all the growing crop thereon, four horses, & c., naming cattle and sheep, two wagons, one spring wagon, one carriage, farming implements of every description, all his household and kitchen furniture, about ten acres of wheat and rye growing on an adjoining farm, also the corn growing on the same place, in which he had an interest, also his interest in ten acres of oats and in the crop of potatoes and sorghum on another place he names, and also the melons on the place where he was then living, in trust to secure John Carpenter in a debt of $500, & c., naming the other creditors and their debts. The deed then says: It is covenanted expressly herein that the said grantor is to hold, occupy and enjoy the use and profits of the property herein conveyed for the term of three years from this time, by paying the interest on the debts herein secured annually, and then if at the end of three years all the debts herein secured are not liquidated at that time, the person or persons holding a majority of the debts then unpaid, may at any time require the trustee, upon due notice, to advertise and sell. But it is further covenanted, that at any time the said grantor may desire to sell the property herein conveyed, the parties are to allow the said sale, and receive the amount of money then due. This deed was only executed by Peter F. Earman, and was admitted to record on his acknowledgment in the office.

The creditors named in the deed, and the trustee, who was also a creditor, severally answered the bill. They all aver that their debts are bona fide, and offer the evidences of their debts. They say they had no knowledge of the execution of the deed until it was made; but when informed of it they accepted it; and they deny all fraud in procuring it, and they do not believe there was any purpose of fraud by the grantor in its execution.

Peter F. Earman also answered. He denied any fraudulent intent in executing the deed. He averred that his purpose was to secure debts he honestly owed; that the judgment of the plaintiff was recovered in his absence; that it was for the balance of an account which had not been fully adjusted, and he was entitled to large credits upon it, which had not been allowed him; and he asked that the court would direct a new trial of the case.

Though a number of witnesses were examined by the plaintiff, there was not the slightest evidence of fraud or knowledge of fraud by the creditors; there were two or three witnesses who stated that after the deed was made Peter F. Earman spoke of Sipe's debt as unjust as to the amount, and that he would not pay it.

The cause came on to be heard on the 11th of October 1872, when the court held that the deed of trust was made bona fide, and was valid and binding, and dismissed the bill with costs. And thereupon Sipe applied to one of the judges of this court for an appeal; which was allowed.

John E. Roller, for the appellant.

Sheffey & Bumgardner and Berlin, for the appellees.

OPINION

ANDERSON, J.

The question raised by the record of this case is, was the deed of trust made by Peter F. Earman, on the 7th of May 1867 to secure his creditors therein named fraudulent?

In Dance & als. v. Seaman & als., 11 Gratt. 778, Judge Allen, in whose opinion the other judges concurred, says: " If it were a question of the first impression, it would be matter for grave consideration" " whether a deed of trust executed by a debtor on the verge of insolvency, creating preference amongst his creditors, postponing the time of sale, the possession in the meantime remaining with the grantor, and the profits to be received by him, and executed without the knowledge of, or consultation with the creditors, (very much our case,) should not be treated as made with a fraudulent intent; because the reservations may tend to hinder and delay creditors in the prosecution of their legal remedies to enforce the payment of their debts. But these questions have been settled by a series of adjudications in this court. It would disturb many titles, if the principles heretofore established, and sanctioned by the practice of the country, were now to be questioned." Where the bankrupt law does not apply, preference of favored creditors is the right of every debtor, and is a doctrine so well established, and so unquestionable, that it is unnecessary to cite authorities in support of it.

But it is contended that proof of fraud in this case arises from the face of the deed. " The court cannot presume fraud unless the terms of the instrument preclude any other inference." Dance & als. v. Seaman & als. supra. And as was said by Judge Allen in that case, so it may be said in this, " the fraudulent intent is denied by the grantor." --" As to the ...