Hudgins v. Kemp (61 U.S. 45)/Opinion of the Court

This is an appeal from a decree of the Circuit Court of the United States for the eastern district of Virginia.

The bill was filed in the court below by the assignee in bankruptcy of John L. Hudgins, against Robert Hudgins and others, to set aside the conveyance of a large real estate charged to have been made by the bankrupt to the said Robert, in fraud of his creditors and of the bankrupt law of the 19th August, 1841. The deed of conveyance purports to have been executed on the 21st February, 1842, but was not recorded till the 8th August following; and conveyed, for the alleged consideration of $5,000, three tracts of land-one tract of one hundred acres, one of nine hundred, and another of seventy acres-being, in the aggregate, one thousand and seventy acres, situate in the county of Mathews, State of Virginia. The bankrupt's place of residence was upon one of the tracts. The deed of conveyance contained a clause that the lands should be subject to any judgments that then bound them by operation of law. John L. Hudgins, the grantor, was heavily in debt at the time of the execution of the deed, and judgments to a large amount were soon after recovered against him. Executions were issued upon these judgments, and the defendant endeavored, by various ways and contrivances, to conceal his person and property from the reach of them. This was in the spring and summer of 1842.

On the 17th February, 1843, John L. Hudgins presented his petition to the District Court for the benefit of the bankrupt act, annexing thereto a schedule of his debts and property-the debts exceeding $12,000; property none, except a contingent interest in a deed of trust by T. Hudgins, for the benefit of creditors. On the 20th May, 1843, the petitioner was declared a bankrupt, and on the 19th September following an order was made, providing for the creditors to show cause, on a given day, why the petitioner should not have granted to him a certificate of discharge from all his debts. The creditors appeared, and resisted the discharge. Much testimony was taken on their behalf, tending to establish the fraudulent transactions of the bankrupt with Robert Hudgins and others, which are now relied upon to set aside the deed in question. The opposition to granting the discharge resulted in the District Court adjourning several questions of law and fact to the Circuit Court, for its decision. What disposition was made of them in that court, we are not advised.

The defendant, Robert Hudgins, in order to prove the payment of the purchase-money of the lands conveyed in the deed of the 21st February, introduced two receipts from John L. Hudgins-one for $3,055, dated 6th August, 1844; the other, 12th August, same year, for $1,425-and proved the execution of the same by witnesses, who counted the money was saw it paid.

The several tracts of land conveyed were worth, as testified to by witnesses, over $10,000, double the amount of the purchase-money. The possession and occupation of the same, subsequent to the sale, seems not to have been changed. Indeed, John L. Hudgins, in his receipt of the payment of the $1,425, 12th August, 1844, describes the land as being the same as that upon which he resides, and has resided for years. He and his sons have cultivated and improved the arable land, cut and sold timber from the woodland, since the sale to the defendant, Robert, the same as before, the latter apparently exercising no control or acts of ownership over the property.

In the fore part of July, 1842, some four months after the alleged conveyance, John L. Hudgins made application to certain individuals to borrow a considerable sum of money, to relieve himself from judgments and executions then pressing upon him, and proposed giving a deed of these same lands, in trust to the lenders, as security for the loan. The writings were prepared with a view to carry into effect this arrangement, and the defendant was present, assenting to it, without disclosing that a conveyance had already been made to him.

A good deal of other evidence was given in the case, bearing more or less upon the question of fraud, which it is not material to recite, and which will be found in the record.

The court below, on the 18th May, 1848, decreed that the deed of John L. Hudgins, the bankrupt, to Robert, his brother, of the 21st February, was fraudulent and void as against creditors, and appointed the assignee in bankruptcy a receiver, to take possession of the property, and directed that a master should take an account of the rents and profits from the petition in bankruptcy to the time when the receiver took possession. The master subsequently reported the amount at the sum of $2,320.26, and on the 27th June, 1855, a final decree was entered. The cause is now before this court, on an appeal from this decree.

It was scarcely denied on the argument, and, indeed, could not be, that John L. Hudgins, the bankrupt, had been guilty of a fraudulent contrivance to hinder and defraud his creditors on the execution of the conveyance in question; but it has been strongly that Robert, the grantee, was not privy to the fraud, and hence was a bona fide purchaser for a valuable consideration. We shall not, therefore, deem it material to refer to any portion of the mass of evidence in the case, except so far as it bears upon the connection of the grantee with this question of fraud.

The answer of the defendant to the bill is not very satisfactory. The bill charges that the deed, though it bears date 21st February, 1842, was really executed on or about the 2d of July following, the time it was put on record; and that it was antedated in pursuance of the fraudulent purpose charged against the parties. The answer does not notice or deny this allegation. Again, the bill charges that the deed was not delivered at the time it bears date; nor, in fact, delivered at all to the grantee in any other way than the putting of it on record by the grantor himself. This charge is not noticed or denied; neither is the allegation denied, that the grantee remained in the possession and enjoyment of the property after the conveyance, the same as before. And this averment, besides being thus virtually admitted, is fully established by the proofs in the case.

The consideration or purchase-money agreed to be given for the three tracts of land conveyed was less than one-half the value, as proved by uncontradicted testimony. The deed contained a chause, that the lands should be subject to any judgments that were then a lien upon them; and it was urged, on the argument, that these judgments should be taken into the account, on fixing the amount of the purchase-money. But the answer is, that it does not appear, from any evidence in the case, that judgments existed against John L. Hudgins at the date of the deed. We have examined the proofs attentively, and find none; nor have any been referred to in the briefs of the counsel. It also appears that Robert, the grantee, some four months after the date of his deed, and when the title to the lands in question was in him, if the conveyance had been really made at its date, was present, and participated in a negotiation for a loan of money to John L. Hudgins, and which was to be secured by a deed from him of these very lands, in trust, to the persons advancing the money.

The conduct of the defendant, Robert, in this instance, furnishes the foundation for a strong inference, either that the deed had not then been executed and delivered, or, if it had been, that the grantee held it for the use and benefit of John L. Hudgins, the grantor. In either view, the fact affords a well-founded suspicion of the bona fides of the transaction between the parties.

In respect to the payment of the purchase-money, of which very formal proofs have been given of the principal part of it, the effect in support of the conveyance is very much impaired by the fact that John L. Hudgins, in the schedule of his estate annexed to this petition in bankruptcy, 23d February, 1843, takes no notice of this indebtedness to him, by Robert, the grantee, and the truth of the schedule is verified under oath. This was a year and two days after the date of the deed, and when the purchase-money was unpaid, if the facts are true, as insisted by both the parties subsequently, upon the question of payment. They now admit this did not take place till August, 1844. No attempt had been made to account for or reconcile this inconsistency, if not worse, on the part of John L. Hudgins. Without pursuing the examination of the proofs in the case further, we will simply say, that after the fullest consideration of the facts in the case, we are satisfied with the conclusion arrived at by the court below upon this question.

But it is insisted that, admitting the conveyance to be void as it respects the creditors of John L. Hudgins, the court below erred in ordering a sale of the property, without having first ascertained the debts of the bankrupt, and permitting the grantee in the deed to redeem on paying them, or directing only so much of the land to be sold as would be sufficient to pay the debts.

The answer to this is, that the defendant, Robert Hudgins, made no offer to pay the debts on ascertaining the amount, and, for aught that appears, the whole of the property will be no more than sufficient to pay the liabilities of the bankrupt. If there should, by chance be any surplus, it belongs to the court in bankruptcy to dispose of it. Whether it should go to the bankrupt or to his grantee, will be for that court to determine.

It is also insisted, that the court below erred in decreeing the rents and profits of the lands in controversy against the defendant, Robert Hudgins, for the reasons that it is not shown that he was in the possession and enjoyment of the same; and, also, that the court erred in decreeing these rents and profits from the filing of the petition in bankruptcy, instead of from the decree declaring John L. Hudgins a bankrupt.

The short answer to each of these objections is, that no such exceptions were taken to the report of the master, and are therefore not properly before us. That was the time and place to have presented these questions, and the omission precludes any question here on the matter.

The decree of the court below affirmed.