Clarke v. White

ON appeal from the circuit court of the United States, for the county of Washington, in the District of Columbia.

In the circuit court, the appellee, William G. W. White, filed a bill against the appellants, charging, that on the 2d of July, 1832, the complainant passed to the defendants, Clarke and Briscoe, his twenty-six promissory notes of that date, each for the sum of two hundred and seventy-four dollars and sixty-seven cents, payable monthly, from sixteen to forty-four months, making the sum of seven thousand one hundred and forty-one dollars and forty-two cents; three of which said notes were subsequently passed by said defendants to Clagett and Washington. That on the 30th December, 1833, he entered into an agreement with the said Clarke and Briscoe, to anticipate the period of credit on the said notes, and to pay the said sum of seven thousand one hundred and forty-one dollars and forty-two cents, in goods and merchandise, at seventy cents in the dollar, on the price the said goods were marked to have cost; that the said Clarke and Briscoe agreed to receive the said goods and merchandise, on the terms aforesaid, in full payment of the said sum of money, and to deliver up the said notes then in their possession; and speedily to take up such of the said notes as had been negotiated, and to deliver the whole to the complainant, that they might be cancelled. The complainant states that he fulfilled his part of the agreement in every particular; that he delivered to said Clarke and Briscoe, and they received goods and merchandise according to the terms of the said contract, to the full amount agreed to be delivered, save a fraction of one dollar and forty-one cents, which was subsequently tendered and refused; but that the said Clarke and Briscoe, having obtained possession of the said goods, retain the said notes, and refuse to perform their part of the said agreement. The complainant, in a supplemental bill, states that Clagett and Washington, to whom three of the said notes had been passed by the defendants, after the date of the said agreement, instituted suits against the complainant, on the said three notes, in the circuit court of the District of Columbia; and that by judgment of the said court, the complainant has been obliged to pay, and had paid to the said Clagett and Washington, the sum of one thousand and eighty-three dollars and fifty-five cents. The complainant prays, that Clarke and Briscoe may be, by decree, ordered to bring into court the said unpaid notes to be cancelled; and to pay to the complainant the said sum of one thousand and eighty-three dollars and fifty-five cents, so paid to Clagett and Washington; and for general relief.

The answer of the defendants, the appellants, admits that the complainant gave the several promissory notes mentioned in the bill, and that three of the same were passed to Clagett and Washington, as stated; and they say the consideration for the notes, was the sale of a large invoice of goods, made about the time of the dates of the notes, or shortly before; that the terms and conditions of such sale were, that the complainant should punctually take up and pay the notes, as the same should respectively fall due; and, in consideration of the complainant's solemn verbal pledge and assurance, that such notes should be so punctually taken up and paid; and upon the faith and confidence of such pledge and assurance, the defendants agreed to deduct five per cent. from the amount of said invoice, and accordingly from the aggregate amount, for which the complainant passed his notes, on account of said sale. The defendants deny that they did make the agreement with complainant, respecting the compromise of their claim against the complainant, and the cancelling of the notes, in the terms and upon the conditions set forth in the bill; but they admit and aver, that, about the time mentioned in the bill, in consequence of hearing the complainant had failed in business, and was compromising with his creditors, a conversation and arrangement did take place between the defendant, Clarke, and the complainant; in which the defendant asked him upon what terms the complainant would settle the whole claim of the defendants; not merely on what terms he would settle the amount of the notes; upon which complainant offered to settle it at sixty cents in the dollar, and pay in goods. Clarke answered, that he understood the complainant had compromised with other of his creditors at seventy cents in the dollar; and hoped the complainant would not think of putting off the defendants with less; and the complainant at length agreed to pay the defendants, in goods, the whole amount of their claim, at the rate of seventy cents in the dollar, and pay the balance, viz. thirty per cent., when he was able: but insisted that they should take the goods in masses, without selection, as they lay upon the shelves; which was finally agreed to by defendant, Clarke: nor was it till after the arrangement had been so agreed on between themselves, that any thing was said between them, about the defendants' getting up and cancelling the complainant's notes: but, afterwards, they admit a conversation on that subject did ensue between defendant, Clarke, and the complainant, in which it was understood and arranged between them, that, upon the settlement of the defendants' whole claim, by paying the same in goods, at the rate of seventy cents in the dollar, the defendants should get in and cancel said notes; not upon the settlement, in that mode, of the amount of the notes merely: such was not the understanding of the parties, at least not of either of the defendants; but the true amount of their just claim against the complainant; the amount understood by defendant, Clarke, at the time, was not the aggregate amount of the notes merely, but of the original invoice; in liquidation of the amount of which, with a deduction of five per cent., the notes had been given: and, inasmuch as that deduction had been allowed, upon the faith and confidence alone of the complainant's pledge and assurance to pay the notes punctually, as aforesaid; and, as he had totally failed to comply with said pledge and assurance, the defendants considered that in equity, indeed in strict justice, they were entitled to the amount of the invoice, without such deduction.

The answer of the defendants further states, that the complainant has not, to the time of filing the answer, complied substantially or otherwise with the terms of the compromise, in the sense in which it was properly understood and agreed upon, so as to entitle him at any time to call in the notes given for the goods delivered to him; that the notes were to be delivered to him, on the entire settlement of the claims of the respondents on him, he not having delivered goods to the respondents to the amount of the bill, and he having refused to deliver the goods to the respondents, without the said deduction. That the goods delivered to the respondents were the residue or remains of the goods originally sold to the complainant, after he had enjoyed the use and profit of them, as a part of his assortment of goods, for eighteen months; and if the compromise had been carried fully into effect, it would have been a most hard and disadvantageous one to the respondents. The compromise was not binding on the respondents, in consequence of the gross frauds and impositions practised by the complainant upon the respondents, and his other creditors, in order to alarm them into compromises of their debts with him, as with a merchant debtor, who has been subjected by the casualties of trade to failure; that the whole matter of the pretended failure of the complainant, was a deliberate, artful and fraudulent scheme, device and contrivance of the complainant to alarm and force his creditors into compromises; while he had, in part, ample means to pay off all his debts, and have a surplus on hand; that with these ample means, he proclaimed his insolvency, and was thus enabled to make advantageous compromises with his creditors, according to the circumstances of his creditors, and the state of their fears. That preparatory to this scheme of fraudulent failure, and during the very season, and shortly before it was proclaimed, he had made unusually large purchases on credit, and had so increased his stock of goods much beyond its usual amount; and, just after he had completed this fraudulent accumulation of stock, he gave out his failure in business and insolvency, and set on foot his plan of fraudulent compromises. It was under the greatest pressure of this alarm, and whilst it was fraudulently used by complainant to practise upon the fears of his creditors, that the defendants were fraudulently and deceitfully drawn by him into such agreement, for a compromise, as they have stated and admitted.

The answer further states, that it is the belief of the defendants, that the complainant had for some time meditated the frauds perpetrated by him; and that before he purchased the goods from the defendants, some time about the 9th of July, 1832, he caused to be entered in the land records of this county, a fraudulent deed, settling valuable property on his family, which had been executed in the month of January preceding; and in the meantime kept secret. This deed conveys the property described in it to a trustee, for the children of the complainant, all minors, and in extreme youth; and was not recorded until within one day of the six months allowed by the law of the District of Columbia, had nearly expired.

To the answer of the defendants, a general replication was filed, and the parties went on to take depositions to maintain or deny the allegations in the pleadings. No evidence was given to sustain the assertion in the answer, that the complainant agreed, at any time, to pay the residue of the debt to the defendants, if he should be able, at any time afterwards, to pay the same. The evidence contained in these depositions is fully stated in the opinion of the court.

The circuit court gave a decree in favour of the complainant, according to the prayer of the bill; and the respondents presented this appeal.

The case was argued by Mr. Hoban and Mr. Jones for the appellants, and by Mr. Marbury and Mr. Key for the appellee.

The counsel for the appellants contended—

1. The complainant has laid no ground in his bill for equitable relief. Neither the agreement itself, as alleged in the bill, nor any of the collateral circumstances, being of a nature to call for specific performance, or any other relief in equity.

2. But whatever the terms or the nature of the composition, and however fit it may be in its own nature for specific performance in equity, the whole of the complainant's equity is repelled by a countervailing equity in defendants, from him promise, as one of their concomitant inducements to the compositions, to pay the full amount of the debt, when able to do so; and from the fact, both averred and proved, that he was able to pay the whole debt.

3. A composition of a failing trader with his creditors, being strictissimi juris, must be fulfilled by the debtor to the letter; and and failure in complying with its terms, in a minute particular on his part, however far he may go in part performance, vitiates and annuls the whole composition.

4. According to the complainant's own showing, he has failed to fulfil the composition in terminis; and he has, to this day, something further to do in order to fulfil it: yet he has not even been decreed to fulfil it.

5. There is no evidence in the cause competent and sufficient to overrule so much of the answer as denies the agreement for composition alleged in the bill, and avers a materially different agreement.

6. Taking the terms of the composition to be such as the answer avers, and puts in the place of what it denies; there appears a still more important, palpable, and fatal breach of its terms on the part of complainant.

7. The actual frauds, which the answer charges, in the elaboration of the scheme of artificial and feigned failure and insolvency for defrauding the creditors of their dues, and overreaching them with unfair compositions under deceitful pretexts; are fully made out in proof; and are sufficient, and more than sufficient, to set aside the complainant's composition with the defendants, and every composition with his other creditors.

8. The inequality alone in his various compositions with his creditors, (all the other circumstances of fraud being out of the question,) is a fraud, per se, both at law and equity; and sufficient of itself, either at law or in equity, to vitiate and set aside each and every of the compositions, from the lowest to the highest.

The counsel argued that the actual proofs in the case not only sustain the answer on the second ground of defence throughout, but make out a far stronger case, in detail, than the general averments of the answer had represented it.

They argued as to the long concocted and prepared scheme of fraud, with a view to failure in business and feigned insolvency; and to consequent compositions with creditors, under the pressure of alarm for the safety of their debts; two prominent facts are, in addition to many minuter circumstances, fully and conclusively proved. First, as to the settlement of certain real estate on his minor children, as stated in the answer. It appears that in 1829 he purchased the property in his own name, and on his own account, and gave his notes for the purchase money by instalments, and was to receive a conveyance upon payment of the last instalment; that he duly paid up all the instalments out of his own proper means and resources; that when, upon payment of the last instalment, he called for a conveyance, he took it to his brother, a youth of seventeen or eighteen years, in trust for his three children, the oldest of whom was then only five years old, and consequently was less than two years old at the time of the purchase, more than three years before; that he had never given the slightest intimation, during all the three years he had held and improved the property, of any trust for his children, till he called for such conveyance; and that he had expended about four thousand five hundred dollars of his own money in buildings upon the property-three thousand dollars before, and fifteen hundred dollars after the conveyance in trust. The deed bears date on the 14th January, 1832, and was not produced for public record till the 13th July following, the very day before it would have run out of date; and in the mean time, whilst that conveyance was kept secret, and he stood forward as the ostensible owner of the property, he contracted this large debt to the defendants, by a purchase of their goods to the amount of near thirteen thousand dollars; just ten or eleven days before he produced the deed, and had it committed to public record. There is no averment or pretence, either in pleading or evidence, of any good or valuable consideration for this settlement; on the contrary, the terms and recitals of the deed itself, and all the circumstances in evidence conclusively repel the presumption of any such consideration. Second: that in laying in his stock of goods for the fall season of 1833, by purchases of goods in the northern cities, at a time just before his alleged failure in business, and when he must have necessarily anticipated the result if it arose from any real difficulty and embarrassment in his circumstances, he purchased a much larger stock than he had ever been accustomed to lay in; and with all this increased stock, or the proceeds, fresh and full in hand, suddenly and unexpectedly to all the world announced, not any mere difficulty and embarrassment in his affairs, but absolute and hopeless insolvency, and an immense deficit of assets in proportion to his debts; and upon that footing negotiated his compositions with his creditors.

As to the charge of an artificial and feigned failure and insolvency, the actual proof in the cause is cogent to the conclusion, that he broke full handed; with abundance of assets to pay all his debts; and that he made an immense profit from his compositions with his creditors.

As to the charge in the answer respecting the inequalities in his compositions with his various creditors, that, also, is more than sustained in proof: for it appears, that whilst he was compounding with the mass of his creditors at various rates, from forty to eighty-seven cents in the dollar, according as he could work upon their fears of still heavier losses from his insolvency; he actually paid particular individuals, whom he found more sagacious and firm than the others, the whole amount of their claims, after unavailing attempts to beat them down to a composition.

Pending this suit, Clagett & Washington recovered judgments at law against him on his three notes passed to them by defendants, amounting, with interest and costs, to one thousand eighty-three dollars fifty-five cents; all of which judgments he fully satisfied before the final decree passed in this cause.

By that decree the defendants are decreed to refund to the complainant the amount so paid by him to Clagett and Washington, with interest on the same from the date of the decree; and, without delay, to bring into court the remaining twenty-three of said notes, to be cancelled; which notes are declared by the decree to be forever null and void, &c.

The counsel for the appellants cited 2 Atkyns, 566; 2 Story's Equity, 18; 1 Vernon, 47, 210; 2 Comy. on Contracts, 380; 1 Stra. Rep. 425; 1 Bro. Chan. 167; 1 Story's Equity, 250; 1 Pickering's Rep. 340; Dickson, 411; 1 Chan. Cases, 103.

Mr. Marbury and Mr. Jones, the counsel for the appellee, contended:

1. That the contract between the complainant and defendant of the 30th December, 1833, is truly stated in the bill; and has been fully complied with on the part of the complainant.

2. That the said contract was made at the instance and by the request of the appellants, without solicitation on the part of the complainant; and without any fraud or imposition practised by him on the defendants to induce them to enter into the same.

3. That the relief prayed for by the complainant below, is within the jurisdiction of a court of equity.

The counsel for the appellee denied all fraud in the transactions between him and the appellants. While the appellee substantially and effectually complied with his agreement, the appellants have altogether failed on their part. The misfortunes of the appellee obliged him to make the compromises effected with his creditors; and that which was entered into with the appellants was made in good faith, and was so executed by him. The agreement made with the appellants was that stated in the bill; and the appellants did not prove in the circuit court any other agreement. Many of the allegations in the answers are not supported by proof; and they are therefore to have no weight with the Court in their consideration of the case.

A court of chancery has jurisdiction to direct the delivery of notes or bonds, or deeds, which a party cannot, in conscience, withhold; 1 John. Chan. Rep. 517; 2 Story's Equity, 11.

The settlement of the real estate was open and notorious. The deed was put upon the public records. The compromise made with the appellants, had no connection with arrangements made with other creditors; and is not to be affected by them. The principles of law which render a composition with creditors void, on the ground of inequality or concealment, do not apply to such a case as this. Where a general compromise is made, apparently equal, but some of the creditors have been induced to assent to it by a private, and more beneficial agreement; it will be void. But such is not the case before the Court. Cases cited in the argument, 5 East, 230; 5 John. Rep. 291; 12 Price's Rep. 183.

Mr. Justice CATRON delivered the opinion of the Court: