Opinion
August Term, 1849.
Where an agreement was made between a father and his sons, that they should purchase his land at execution sale, at an undervalue, for his use and for the purpose of keeping off other creditors: Held, that a purchase by the sons under such circumstances was fraudulent and void against creditors, whether the money was furnished by the father or paid out of their own means.
APPEAL from the Superior Court of Law of McDOWELL, at Spring Term, 1849, Bailey, J., presiding.
Both parties claim under sales by executions against John Allen, under the following circumstances; One John McEntire had a judgment against John Allen, on which a balance of $400 was due in August, 1840, and the premises were then sold by the sheriff under a fieri facias on that judgment, and purchased at the price of $405 by the defendants, who are the sons of John Allen, and took a deed from the sheriff. On 16 September, 1837, John Allen, as the surety of another (204) person, gave a bond to Morris, the lessor of the plaintiff, for $1,000, payable two days after date; and a suit was commenced thereon in March, 1841, in the Superior Court of Burke, and judgment obtained in October, 1842, for $1,223.95. On 10 December, 1842, a fieri facias was sued out thereon, directed and delivered to the sheriff of Burke, returnable to Spring Term, 1843, which was levied on the premises on 6 March, 1843, by the sheriff of Burke, who sold them at Morganton, on 19 April, 1843, at $500, to the lessor of the plaintiff and made him a deed. The premises are situated in that portion of McDowell County which was taken from Burke County, and the levy of the execution was made before the first County Court held for McDowell, but the sale afterwards. The plaintiff then gave evidence that the premises were, at the time of the purchase by the defendants, of the value of $1,500, and that John Allen was much indebted to another person and was totally insolvent. And the plaintiff further gave evidence tending to show that the money which the defendants paid for the premises belonged to their father; and also that there was an agreement between John Allen and his sons, the defendants, that the defendants should bid off the land and take the title to themselves, for the purpose of securing the enjoyment to the father, and with the intent to defraud the plaintiff and other creditors of the father of their debts.
Thereupon the defendants moved the court to instruct the jury that the sheriff of Burke had no authority to sell the land at Morganton, and therefore that no title passed by his deed to the lessor of the plaintiff. But the court refused to give the instruction. And his Honor then stated his opinion to the jury, that if John Allen furnished the purchase money, paid by the defendants to the sheriff, to the intent that the sons should take the title to themselves and thereby defeat the (205) other creditors of the father, the purchase of the defendants was fraudulent and void, although the plaintiff in the execution, McEntire, and the sheriff were parties to such agreement. And furthermore, if there was an agreement between John Allen and the defendants that they should buy the land at the sheriff's sale and take the deed to themselves, but so that the father might possess and enjoy it, and with the intention to defeat the lessor of the plaintiff and his other creditors of their just debts, that then the purchase of the defendants would likewise be fraudulent and void, although the defendants paid their own money. There was a verdict for the plaintiff, and the defendants appealed from the judgment.
Avery and Gaither for plaintiff.
Bynum and N.W. Woodfin for defendants.
By the general law the sheriff of Burke, if he had authority to sell at all, was obliged to sell at the courthouse of his own county; and he could not, therefore, go to the courthouse of the new county for that purpose. Rev. St., ch. 45, sec. 10. The first question turns, then, upon the power and duty of the sheriff of Burke to make the sale. We think very clearly that he was the person, under the acts establishing McDowell, 1842, chs. 10 and 11. That county was constituted of parts of Rutherford and Burke; and by section 8 of ch. 11 it is enacted that all process issued from the Superior Courts of Burke and Rutherford against the citizens of McDowell, until a sheriff shall have been elected for McDowell, shall be executed by the sheriff of Burke or Rutherford; and that, after that time, such process shall be directed to the sheriff of McDowell and be executed by him. And section 8 enacts "that nothing in this act shall be construed so as to prohibit the sheriffs of Burke and Rutherford from collecting such moneys as are due or may become due on any judgment before the (206) first court for McDowell." From those provisions it is plain the Legislature did not mean that a creditor should be defeated or delayed of execution for his debt by the division of the county. On the contrary, executions taken out from the courts of Burke were to be directed to the sheriff of Burke until there should be a county court and sheriff for McDowell; and, of course, the sheriff to whom the execution was by law to be directed, and was directed, is the proper officer to execute it; and it is the sole purpose of section 8 to provide against a contrary construction in respect to the officers mentioned in it.
The Court agrees also to the instructions given to the jury under the evidence. It is true that the exception does not set forth the evidence in detail, and therefore we cannot affirm positively what it was. But it is stated, in general terms, that it tended to prove an agreement between the father and sons, before the sale, that the land should be sold by the sheriff and the sons should buy it and take a conveyance, to the double intent that the father should still enjoy it and that his other creditors should be defrauded; and, under the verdict of the jury, it must be taken that the evidence did establish such an agreement and upon those intents. Indeed, it was admitted at the bar that the facts upon the trial were clearly against the honesty of the transaction between the father and sons, if, upon the supposition of the sons paying their own money, in point of law, there could be a fraud which would avoid the sheriff's deed at law. We do not think that the plaintiff's case necessarily depends on avoiding the deed to the defendants by reason of the fraud in their purchase. For, if they bought in trust for their father, whether bona fide or not, the land would be liable under the act of 1812 to execution for his debts, unless it was a part of the agreement, and that bona fide and (207) openly, that the sons should take the sheriff's deed as a security for the sum paid by them for the land, or some other debt. No doubt such a transaction in good faith would be supported, as was mentioned in Dobson v. Erwin, 18 N.C. 569; and then the interest of the father could only be sold under execution, if at all, as an equity of redemption, and subject to the payment of the sums advanced by the sons, as a debt to them. But nothing of that kind is suggested here. On the contrary, the case is that an insolvent father and his sons contrive to bring a tract of land, worth $1,500, to sale on execution with the view that the sons shall buy it at a great undervalue, and hold it upon a secret trust for the father, in order by those means to defeat creditors. It would be surprising if a transaction so obviously covinous and injurious to creditors, and tending so directly to enable debtors in effect to keep back parts of their property from their creditors, could be supported, or that the common law should not be competent to detect and redress it. In the case of Dobson v. Erwin it was held that if the debtor advanced the money, or a considerable part of it, to make the purchase at the sale of the sheriff, and the purchase was made for his own use, that was a fraud which would avoid the title, though the sale was at the instance of another and for a just debt. For, in such a case, the sale, though in form that of the sheriff, is, by the contrivance of the debtor and the purchaser, and in respect of their fraudulent purpose, substantially as much a sale inter partes as if there had been no intervention of the sheriff. It is the same thing precisely, though all the money paid to the sheriff be advanced by the person to whom he makes the deed, provided, only, there be the same intent in each case to cheat creditors. But it is said that, in such a case, the law cannot admit the idea that the highest bidder at a public sale, who pays his own money, can have an intent to cheat the creditors of the former owner of the property, since (208) the sale is made by the law itself for a necessary purpose. But all know that is no protection against frauds. Many frauds are committed on the debtors in such sales by bringing them on by surprise, by suppressing bidding and the like. So likewise many debtors contrive by combinations with near relations or friends, at such sales, to have their property bought in at an undervalue, in the hope that thereby other creditors will be kept off, while they will have the enjoyment of the property at but slight expense to their relations. A man with the money in his pocket refuses to apply it to the payment of a judgment debt, in order that an execution may issue and his property be sold, and bought for a small price by his family for his enjoyment, so that he may keep his money, and another creditor, who is expected to come shortly with an execution, may find nothing tangible out of which he may make his debt. Surely, there can be no clearer fraud than such a contrivance to put a man's property out of the reach of an execution. The circumstance that the purchaser pays his own money is evidence, indeed, that the purchase was on his own account and bona fide. But it is certainly not conclusive; for, as mentioned by Lord Mansfield, in Cadogan v. Kenneth, Cowp., 432, there may be cases where a person gives a full price, and yet the thing, being done mala fide for the purpose of defaulting creditors, is fraudulent and void. So, if the father did not have the money, yet the case would be the same upon such an agreement and with such intent. Every man whose property is offered for sale, whether by himself or an officer, is naturally disposed to get the most for it, at least a fair price; and it is the common experience, when nothing is meant but what is fair, that such a man uses some exertion to collect bidders and to induce them to go to a reasonable value. If he has other creditors, perhaps it is his duty to them thus to act; and most men who adequately feel the moral obligation of contracts would probably (209) do so. But, although that may be an imperfect duty, as there is no mode of enforcing it, yet the debtor's own interest would prompt him to the use of means for making the property, which was to be sold from him forever, go as high as he could, so as to reduce his indebtedness as much as possible; and in that way his creditors would get the benefit of his labors. But if he were encouraged to make bargains beforehand with his friends, whereby it becomes his interest to desist from all exertions to make a fair sale, to disparage the property, to induce his family and friends secretly not to contend in the bidding with another man, who intends to buy, if it can be done at a sacrifice, and let him have the use of the property, it is manifest that it would open the door to very iniquitous practices to the prejudice of creditors. The conduct of such a debtor and purchaser, in reference to other creditors, is precisely analogous to that of a combination among others to suppress competition in reference to the debtor himself. The debtor may not be bound to aid in getting a good price for the property; but it is a fraud on the law and other creditors if he binds himself not to do so, or enters into agreements for his own benefit which restrain him from doing so. Suppose, for example, that the creditor whom it is the intent to defeat, resides at a distance, and that it is one part of the plan that the sale shall take place under the first execution, before he can know of it or be apprised of his debtor's embarrassments, and thereby prevent him from attending and making the property bring its value. Or suppose that, by consent between these parties and the sheriff, the sale is made without advertisement, with a view to a sacrifice; or that, with the same view, the debtor and his sons pull down the advertisements and prevent a general knowledge of the sale: it is obvious that in all those cases, and also in many others which may be conceived, great loss might be (210) thrown on creditors and a corresponding gain unfairly obtained by the debtor an his family, which is altogether contrary to fair dealings and good morals. It is not doubted that a son may properly and ought to assist a reduced parent, and that he may do so by buying the father's land, as the highest bidder, when it is sold for his debts, in order to provide a home and a sustenance for him, provided it be done bona fide and openly. But that never can be the case when there is a previous agreement between the father and son for such a purchase, upon a secret trust for the father and with the intent to defeat a creditor, which implies that a loss is to arise to the creditors to the amount of the difference between the value of the land and the price to be given by the son, and that the father shall or will do nothing to prevent that loss, but, on the contrary, is to promote it in any way he can, so as to subserve his secret interests. In substance, such transactions, when the facts can be got at, must be deemed by the law contracts of the parties; and therefore, when it happens that the purchase is made at an undervalue, and is thus to the actual prejudice of creditors, as, indeed, it was, intended, it must be held void. For it is clear, although the sale be made by the sheriff, yet it is only colorably so, for the inducement to the purchase arises, and the real contract for it is made beforehand, between the parties, and its execution is to be dependent upon the sales happening to be made at an undervalue. Therefore the truth of the case is no more nor less than this: A debtor, who knows his land may soon be sold under execution, makes an agreement with a son that, for an inadequate price — paid to another creditor — a conveyance shall be made to him of the land as upon an absolute sale, but upon a secret trust for the debtor, and expressly for the purpose of defeating the expected execution; and the question is whether that transaction is to stand good against such creditors. Most certainly not. (211) The purpose is iniquitous and the deed must be void.
PER CURIAM. Judgment affirmed.
Cited: Jimmerson v. Duncan, 48 N.C. 538; Perry v. Yarborough, 56 N.C. 68; Taylor v. Dawson, ib., 92; McCanless v. Flinchum, 89 N.C. 375; Woodley v. Hassell, 94 N.C. 161.