
    
      J. S. & L. Bowie vs. John G. Free and others.
    
    Where a judgment, confessed for a much larger amount than is actually due the plaintiff, and intended not only to securi the amount actually due but also to defraud other creditors of defendant, is set aside, at the suit of creditors, for the actual fraud, the plaintiff in the judgment will not be allowed to retain its lien, as against the other creditors, for the amount actually due.him.
    
      Before Dunkin, Ch., at Barnwell, February, 1851.
    Dunkin, Ch. The complainants are creditors of John G. Free. The object of the proceeding is to set aside a judgment confessed by John G. Free, to his co-defendants, H. B. Rice and Allen F. Free, on the 18th January, 1849. It seems, from the evidence, that, about the year 1845, John G. Free set up a country store, in Barnwell district, not far from Buford’s Bridge.— Desiring to obtain credit from the wholesale dealers in Charleston, he was introduced by the defendant, H. B. Rice, to the complainants, J. S. & L. Bowie, “ as a responsible purchaser, a man of property, and a hard working, honest man.” This recommendation not only obtained him credit with the Messrs. Bowies, but with Wily, Banks & Co. and with others. In September, 1848, J. G. Free was in debt to the Bowies, to the amount of $1828 87, and to Wily, Banks & Co. $[,158 04, and was, at the same time, considerably indebted to other dealers in Charleston. He became embarrassed, and was threatened with suits. Under these circumstances, he, on the 19th December, 1848, gave his promissory note to his co-defend mts, H. B. Rice and Allen F. Free, for the sum of six thousand seven hundred and fifty-four dollars and thirty-eight cents ($6,754 38,) and, on the 18th January, 1849, he confessed a judgment on the said note, with interest from the date thereof, on which judgment a ft. fa. was issued and lodged with the sheriff of Barnwell district. On the second day of July following, the property of J. G. Free was taken to satisfy said execution, and was sold for about two thousand dollars, nearly the whole of the property being bid off by the defendants, H. B. Rice and A. F. Free. In the mean time, suits at law were pending against John G. Free, at the instance of the complainants and other creditors, and judgments were entered thereon, at Spring and Fall Term, 1849. This bill was filed on the 15th August, 1849, charging that the judgment of the 18th January, 1849, was fraudulent. The answers of John G. Free and H. B. Rice were filed on the 29th December, 1849, and an amended answer of the latter on the 29th January, 1850. Some time in 1849, but at what time does not appear, J. G. Free made an assignment of his books, notes and accounts to H. B. Rice and Allen F. Free. One of the witnesses (Bratham) said that, in 1849, he saw an advertisement, calling on the creditors of J. G. Free, to make payment to him, (Rice,) and that the advertisement was signed by Rice as assignee.
    At Fall Term, 1850, for Barnwell district, John G. Free was admitted to the benefit of the insolvent debtor’s Act, on executing the usual assignment. In his schedule, he includes any interest he may have in the books, notes and accounts assigned by him to H. B. Rice and Allen F. Free.
    All the defendants admit that no such sum as $6,754 38 was due by John G. Free to H. B. Rice and Allen F. Free, on the 18th. December, 1848. Rice says that, about that time, he and John G. Free made a calculation of what was due by J. G. Free, to A. F. Free, (who had been his ward,) and also of his indebtedness to Rice, as well as of the debts for which Rice was liable, and “found the same to be about .$4,754 38, for which J. G. Free proposed to give them a confession of judgment, but, as the amount of the notes of J. G. Free, on which Rice was indorser, could not be ascertained, and as J. G. Free might require subsequent indorsements, it was agreed that the sum of $2,000 should be added and included in said judgment, to cover any amount that might be omitted, as well as any further indorsements.”
    It seems that John G. Free was appointed guardian of his brother, Allen F. Free, about 1841. He had made regular annual returns to the Commissioner. His last return, previous to the confession of judgment, was in January, 1848. The whole amount due to his ward, according to those returns, including a calculation of interest on the annual balances, was six hundred and four dollars and thirty-four cents. One of the witnesses, who was a surety on the guardianship bond, but was subsequently released, testified that, in December, 1848, or January, 1849, he had a conversation with Allen F. Free, in which he stated that he and his brother had had no settlement; that there were transactions between them, but that he did not suppose the amount due him exceeded seven hundred dollars. The whole amount due by J. G. Free to H. B. Rice, in January, 1849, including interest on his open accounts, appears by the statement filed with his answer not to have exceeded six hundred and ninety-four dollars, and the notes for which he says he was responsible, amounted, by that statement, to about one thousand or one thousand and fifty dollars. The whole amount of indebtedness and liabilities not exceeding seventeen hundred and fifty dollars. It is not suggested that any “ further indorse-ments” were asked or obtained, by John G. Free from H. B. Rice. It is not the least remarkable feature of the transaction that, at that time, January, 1849, when John G. Free was utterly bankrupt, about to be pressed by debts exceeding three times the amount of his property, he should confess a judgment, a large proportion of which was to indemnify the plaintiff against future indorsements. But, according to the statement of H. B. Bice, filed as a part of his answer, and according to the sworn returns as guardian, by John G. Free, the whole amount for which his co-defendants, Rice and A. F. Free, had any claim against him, in January, 1849, scarcely exceeded twenty-three hundred dollars, and they took from him a sealed note for six thousand seven hundred and fifty-four dollars thirty-eight cents, with a confession of judgment thereon. Upon this judgment execution was issued, and, in July, 1849, the defendant’s property was sold by the sheriff, and purchased by the plaintiffs in the execution, for about two thousand dollars, leaving subsequent execution creditors, to the amount of nearly five thousand dollars, wholly unsatisfied.
    There are some remarks of Chancellor Harper in the case of Hipp Sp Vansant vs. Sawyer, (MS. Lexington, February, 1830, affirmed by Court of Appeals, book D, 311,) which seem not inapplicable. Part of that case related to a deed which was attacked as voluntary, but which was attempted to be sustained, because a part of the alleged consideration had been paid.— “ Now,” says the Chancellor, “ if this had been proven, I should think the difference between the actual payment and the ostensible consideration, a strong circumstance against the deed. It does not follow that, because a consideration was paid, a conveyance cannot be fraudulent as to creditors. In Twine's case, there was a consideration. Even if the full value was paid, and it appeared that the transaction was concerted between the grantor and grantee, to enable the former to defeat creditors by changing the land into money, which he could more easily put beyond the creditor’s reach, I presume the conveyance would be considered fraudulent. Lord Mansfield says, in the case of Ca-dogan vs. Kenneth, (Cowper, 434,) ‘ But, if the transaction be not bona fide, the circumstance of its being done for a valuable consideration, will not alone take it out of the statute. I have known several cases where persons have given a fair and full price for goods, and where the possession was actually changed, yet, being done for the purpose of defeating creditors, the transaction has been held fraudulent, and therefore void.’ He instances the purchase óf a house and goods, with a view to defeat a sequestration out of Chancery, and of goods to defeat an execution, and adds — ‘ The question, therefore, in every case is, whether the act done is a bona fide transaction, or whether it is a trick and contrivance to defeat creditors.’ The inserting of a false consideration in the deed,” continues. Chancellor HaepeR, “ shews the transaction to be, in some degree, colorable. It indicates that they thought the true consideration inadequate and insufficient to support the deed.” The Chancellor says, the defendant, probably, did pay some debts of the grantor, and intended him to hold the land not subject to the claims of creditors, and he may have supposed this a benevolent and unexceptionable transaction: “ but the law,” says he, “ pronounces it fraudulent.” In the same case, the validity of a confession of judgment, given by the defendant, Sawyer, to "his co-defendant, Martin, was impeached: it was for $8,377. The complainants alleged various grounds, all of which were examined by the Chancellor. Among others, “ The confession of judgment to Martin,” says he, “ was made during the pendency of complainants’s suit at law against Sawyer, and just before the judgment; and though a debtor may, without fraud, prefer one creditor to another, yet the circumstance is entitled to considerable weight when the transaction is, otherwise, of so doubtful a character as the present. According to Twine's case, the making of a conveyance, in satisfaction of a debt, during the pendency of the suit, is one of thé badges of fraud, and the confession of a judgment comes within the same reason.” After discussing the various circumstances, the Chancellor concludes “ that presumptions against the judgment were strong enough to impose on the defendant the burden of shewing that it was bona fide, and founded on consideration, and that he' had failed to do so. Roberts, in his Treatise on Fraudulent Conveyances, (p. 490,) says, 1 though the debt be bona fide due, the judgment, quoad other creditors may be mala fide confessed, i. e. may be confessed -with intent to delay, hinder or defraud others of their just and lawful actions, and such intent is to be gathered from the circumstances of each case.’ “ In the present case,” says the Chancellor, “ I am not satisfied that any debt was bona fide due; but, if there was, or if defendant was under liabilities against which he was not sufficiently secured, I am satisfied the judgment was mala fide confessed for an extravagant amount, with intent to cover all the property of Sawyer, and to hinder and defraud other creditors.” The judgment in favor of Martin was declared void, and he was decreed to account for all property which he had received under it.
    If Hipp Sp Vansant vs. Sawyer be law, (and it seems to be well sustained, not only by reason, but by the authority of elementary writers as well as by that of the distinguished jurist who pronounced the judgment) it is decisive of this cause. It may be conceded that John G. Free was indebted to his co-defendants, but why was a judgment ‘taken for three times the amount 1 Why was a note given for the precise sum of six thousand seven hundred and fifty-four dollars and thirty-eight cents, but to hold out the appearance of bona fide indebtedness to that particular amount ? But, say both the defendants, H. B. Bice and John G. Free, it was partly to secure Rice against “ subsequent indorsements.” The judgment was confessed January, 1849. The existing indebtedness and liability of Free to the plaintiffs in the judgment was ascertained (say they) to be about four thousand seven hundred and sixty-four dollars, thirty-eight cents ($4764 38). J. G. Free’s property was worth about $2000 — yet they added two thousand dollars to the amount of this lien, .“ as John G. Free might require subsequent indorsements.” It is not suggested that any subsequent indorsements were ever made. But that is not the inquiry. Can it be supposed that it was in the contemplation of the parties to increase the indebtedness of John G. Free on the faith of this judgment ? On the other hand, is it not apparent, from all the circumstances, that although some indebtedness existed, and the defendant, Rice, was under liabilities for J. G. Free, yet, in the language of Chancellor Harper, “the judgment was mala fide confessed for an extravagant amount, with intent to cover all the property of John G. Free, and to hinder and defeat other creditors who were about to press their demands?”
    My opinion is, that the judgment in favor of H. B. Rice and Allen F. Free must be declared null and void — the original indebtedness of their co-defendant, John G. Free, is unaffected. It is only determined that they can take no advantage and derive no security from the judgment which has been mala fide confessed.
    It is, therefore, ordered and decreed, that the judgment of the 18th January, 1849, be set aside — that the defendant, H. B. Rice, pay into the hands of the Commissioner the sum of seven hundred and seventy-six dollars and sixty-two cents, with interest, (being the price at which he re-sold the slave Anthony,) — . that the lease of the land and buildings bid off by H. B. Rice on 2d July, 1849, be re-sold by the Commissioner, on a credit until 1st January, 1852, secured by bond bearing interest and personal security, and that H. B. Rice account for the rent thereof since 2d July, 1849 — that the slaves bid off by the defendant, Allen F. Free, be sold by the Commissioner, on a credit until 1st January, 1852, secured by bond bearing interest, personal security, and a mortgage of the slaves, and that Allen F. Free account for the hire of said slaves since 2d July, 1849. It is further ordered and decreed that the aggregate amount of the several sums thus to be realized be paid to the execution creditors of the defendant, John G. Free, according to their respective legal priority. It is finally ordered that the Commissioner take an account of the amount due by the defendants for rent and hire as aforesaid, and that he report thereon; and also that he report on the execution debts of the said John G. Free, with the dates thereof, and the amount due on the same — costs to be paid by the defendants.
    The defendants, Henry B. Rice and Allen F. Free, moved to reform the circuit decree — because, under the circumstances of the case, the judgment at law, mentioned in the pleadings, ought to be permitted to stand as a security for the amounts really and bona fide due to the said defendants respectively.
    
      Patterson, for motion.
    
      J T. Aldrich, contra.
   Dunkin, Oh.

delivered the opinion of the Court.

It is too long and too well settled to be now called in question, that a debtor has the right to make a preference among his bona fide creditors. Nor is it any violation of the statute 13 Eliz. c. 5, that this preference is given by confession of judgment, as was ruled by the King’s Bench in Holbird vs. Anderson, (5 T. R. 235). Nor is the judgment void because confessed for a larger sum than the amount actually due. Bank of Georgia vs. Higgenbottom, (9 Peters, 48). It has been repeatedly held, too, that a judgment, or other security, may he taken for future responsibilities, or future advances. Chancellor Kent expresses the opinion that this doctrine should be taken with the limitation that, where a subsequent judgment or mortgage intervened, further advances after that period could not be covered.

The policy of permitting such preferences, and especially of creating liens so uncertain, and, in some sort, ambulatory, has been frequently called in question. Some judges have declared that, if the subject were res integra, a different rule would be adopted. All the cases, however, hold that the transaction must be marked by good faith, an honest determination to secure the just rights of a creditor; and that it be not a mere cloak to secure the property of the debtor, or to protect it from the claims of his other bona fide creditors. It would be a mockery of justice to hold the transaction valid, because one creditor was secured by a scheme, the leading purpose of which was to defeat and defraud all the other creditors. The inquiry in this, and in all similar cases, is as to the true intention of the parties; and in solving this inquiry all the circumstances are to be considered. In itself, it is no fraud to take a judgment for a larger amount than is actually due. The amount may not he ascertained, or may not, at the time, he susceptible of accurate statement. But why take the judgment for an amount three times greater than any sum supposed to be due, and with a minuteness of dollars and cents, which holds out the appearance that an account of indebtedness had been taken, and the amount due accurately ascertained and adjusted at that precise sum? Why was this delusion continued even to the day of sale of the debtor’s property, and no intimation given, either on the record, or otherwise, that the judgment was, to a great extent, fictitious? But it is not proposed to repeat, or enlarge upon, the observations made in the decree. The Court did not doubt that something was due by John G. Free to both his co-defendants, and that one of the objects of the judgment was to secure that indebtedness, but justice must be hoodwinked not to perceive that the debtor had other and ulterior purposes to answer, which formed a principal consideration for his conduct, and to which his co-defendants were necessarily privy. The decree of the circuit Court does not impair the original contract of indebtedness, but only declares void the security thus unlawfully obtained.

The principal, and perhaps the only ground of appeal is that the Chancellor should have permitted the judgment to stand for the amount actually and bona fide due by the debtor, John G. Free. This question has been heretofore very fully considered in our own Courts, and the cases of Miller vs. Tolleson, (Harp. Eq. 145;) Fryer vs. Bryan, (2 Hill Ch. 56,) and Baker vs. Holmes, (2 Hill Ch. 95,) have definitively settled that, when a judgment or other security is successfully impeached for reasons of this character, it cannot be allowed to stand for any purpose prejudicial to the rights of the other creditors.

It is ordered and decreed that the appeal be dismissed.

Johnston, Dargan and Wardlaw, CC. concurred.

Appeal dismissed.  