U.S. Supreme Court
Shawhan v. Wherritt, 48 U.S. 7 How. 627 627 (1849)
Shawhan v. Wherritt
48 U.S. (7 How.) 627
A decree of the district court of the United States, sitting in bankruptcy, whereby a person proceeded against, in invitum was declared to be a bankrupt is sufficient evidence, as against those who were not parties to the proceeding, to show that there was a debt due to the petitioning creditor, that the bankrupt was a merchant or trader within the meaning of the act, and that he had committed an act of bankruptcy.
The first section of the Bankrupt Act declares that the making of any fraudulent conveyance, assignment, sale, gift, or other transfer of lands, tenements, goods, or chattels is the commission of an act of bankruptcy.
No creditor can, by instituting proceedings in a state court after the commission of chanrobles.com-red
an act of bankruptcy by his debtor, obtain a valid lien upon the property conveyed by such fraudulent deed, if he has notice of the commission of an act of bankruptcy by the debtor. It passes to the assignee of the bankrupt for the benefit of all the creditors.
A lien thus acquired is not saved by the proviso of the second section of the bankrupt law. That proviso does not protect liens which are inconsistent with the second and fifth sections of the act, and these sections declare such a lien to be void.
On 6 April, 1842, Benjamin Brandon executed the following deed:
"This indenture, made and entered into this 6 April, 1842, between Benjamin Brandon, of Harrison County and State of Kentucky, of the one part, and William A. Withers, of the county and state aforesaid, of the other part, witnesseth:"
"That the said Benjamin Brandon, for and in consideration of one dollar, to him in hand paid, and for the further consideration hereinafter mentioned, hath given, granted, bargained, sold, released, conveyed, and confirmed, and by these presents do give, grant, bargain, sell, release, convey, and confirm unto the said William A. Withers, his successor or successors forever all the estate, real, personal, and mixed, of whatever nature or kind it may consist (except such property only as by law not subject to execution), said estate hereby conveyed consisting of a tract of about 336 acres of land situated in the state and county aforesaid, and the same tract on which said Brandon now resides, and on which is a steam mill and distillery, the boundary of which land is more particularly designated in the several deeds which said Brandon holds for said land; also five negroes, two wagons and teams, about 400 head of hogs, about 15,000 pieces of cooper's stuff, all his stock of horses, cattle, and sheep, his household and kitchen furniture and farming utensils, his debts and choses in action of every kind and description, it being the intention of said Brandon by this deed to convey to the said Withers and his successors forever all his estate, real, personal, and mixed, and choses in action, with the exceptions hereinbefore expressed, whether the same be particularly mentioned and set forth in this instrument or not. To have and to hold all the estate, real, personal, and mixed, and choses in action, hereby conveyed to the said William A. Withers and his successor or successors, forever, in trust for the following purposes, namely, to collect the debts and choses in action due, payable, or owing to said Brandon and to sell the real estate hereby conveyed, either all together or in lots, as said trustee may think most advisable, at public auction, to the highest bidder, on the
following payments: namely, one-third of the purchase money to be paid in hand, and the residue in one and two years, and the slaves and personal estate to be sold at public auction to the highest bidder on a credit of twelve months, and after making to said trustee a just and reasonable compensation for his trouble and expenses in executing this trust, to pay all the money which he may receive as trustee aforesaid, either by the collection of debts or choses in action, from the proceeds of the sale of the trust estate, to all the creditors of said Brandon, ratably, proportionally to the amount of their respective debts or demands; but should anyone or more of the creditors of said Brandon become the purchaser or purchasers of any portion of the real or personal estate, or slaves, hereby conveyed, said trustee is authorized and empowered to accept the debt or debts due or owing by said Brandon to such purchaser or purchasers, in payment for their respective purchases, so far as said debts may go; and in such cases, if any such should occur, only the residue of the price to be distributed pro rata as aforesaid; and after the payment of all said Brandon's debts, to pay the residue, if any, to said Brandon, his heirs and assigns; and the title to the estate hereby conveyed he doth hereby warrant and defend to said Withers, and his successor or successors, forever, in trust for the purposes aforesaid, against the claim or claims of him, the said Benjamin Brandon, and against all other claims. In testimony of which, the said Benjamin Brandon hath hereunto subscribed his name and affixed his seal this day and year first above written."
On 3 May, 1842, John L. Shawhan and others filed a bill in the Harrison Circuit Court of Kentucky, sitting as a court of equity. The bill recited that the complainants were creditors of Brandon; that he had executed the deed above set forth, "for the purpose of hindering, delaying, and defrauding the creditors of the said Brandon in the collection of their debts;" that the trustee was about to sell and dispose of the property mentioned in the deed; and prayed for an injunction to stop him.
On the same day an injunction was issued and served upon Brandon and Withers, the trustee.
On 21 May, 1842, Brandon and Withers filed separate answers to the bill. Brandon admitted his indebtedness and the execution of the deed of trust, averred that Shawhan was present while the deed was preparing, and expressed himself satisfied with its provisions, denied most positively that he executed said deed either to hinder, delay, or defraud chanrobles.com-red
his creditors, but, on the contrary in good faith believing that general satisfaction would be given to them. The answer of Withers was to the same effect as that of Brandon.
On 25 June, 1842, Withers and Brandon applied for an order to change the venue. It was granted, and the record sent to the County of Bourbon.
On 24 September, 1842, John Lail presented a petition to the United States Kentucky District Court, sitting in bankruptcy. It alleged that, on 6 April preceding, Brandon had made a fraudulent conveyance with intent to defraud his creditors and that he had concealed himself to avoid being arrested. It then prayed that the court might declare the said Benjamin Brandon a bankrupt. With the petition were filed several exhibits, which it is not necessary to state particularly.
On the same day an order was passed setting down the hearing for the 4th of the ensuing November, and in the meantime enjoining the defendant and all others from removing or otherwise disposing of the property of the defendant or which, on the decree, the assignee might be entitled to reclaim and recover.
On 22 October, 1842, the Bourbon County Court, before which the suit of Shawhan and others against Brandon and Withers was pending, passed a decree annulling and setting aside the deed of trust as being in point of law fraudulent and void. The court enumerated many of the creditors, whose claims had been exhibited, and then ordered that
"so much of the personal property, slaves, and real estate mentioned in said deed of trust as may be necessary for the purpose be sold to satisfy the aforesaid debts."
Thomas B. Woodyard was appointed to make the sale, according to certain given directions.
On 22 November, 1842, the district court of the United States passed the following order:
"JOHN LAIL v. BENJAMIN BRANDON"
"The prayer of the petitioner that the defendant be declared a bankrupt having been heard upon the allegations of the petition, and the proofs taken and filed (the defendant having failed to answer), and now having been fully considered: "
"It is found and adjudged by the court that the said Benjamin Brandon, of Harrison County, being a retailer of merchandise, and indebted as in the petition mentioned, did, by making the deed of conveyance and assignment to William A. Withers of all his property, real, personal, and mixed, and rights of property, subject to the payment of his debts by the
laws of the state, bearing date 6 April, 1842, and on the 7th day of that month and year admitted to record in the clerk's office of the Harrison County Court, and in the petition mentioned, whereof a copy is filed here, now adjudged a fraudulent conveyance and assignment, and by concealing himself to avoid being served with process, whereby a suit had been commenced against him, thereupon became and is a bankrupt."
"Perry Wherritt is appointed the assignee, and required to execute bond in the penalty of $5,000, with two sufficient sureties."
On 24 November, 1842, Woodyard, the commissioner appointed by Bourbon County Court, proceeded to sell the personal property of Brandon.
In May, 1843, the commissioner made his report to Bourbon County Court, whereupon another decree was passed reciting that the former sale was insufficient to pay the debts, and directing that so much of the land comprised in the deed of trust as might be necessary for the purpose should be sold for the payment of the balance of the debts.
On 14 July, 1843, the commissioner sold the land, in conformity with the above order, and John L. Shawhan became the purchaser. A writ of possession was issued in his favor, in April, 1844, which will be mentioned again in its proper place.
On 10 August, 1843, Wherritt, as assignee of the estate of Benjamin Brandon, filed a bill in chancery in the District Court of the United States for the District of Kentucky against John L. Shawhan and the other parties named in the caption of this statement. The bill referred to the former proceedings of the court declaring Brandon to be a bankrupt, and all the other facts in the case. It stated that the assignee had taken possession of the property of the bankrupt, including the land; that Shawhan and others knew of the commission of the act of bankruptcy, but had nevertheless obtained a decree of Bourbon County Court, under the authority of which they had sold the land to Shawhan, who was threatening to disturb the possession of the complainant, and by his threats and false claims of title was preventing the complainant from disposing of the land. It then prayed that Shawhan might be ordered to surrender up, to be cancelled, any pretended claim, and that all the parties might answer &c.
On 18 December, 1843, John L. Shawhan, Daniel Shawhan, and Benjamin Berry answered separately. Shawhan admitted the execution by Brandon of the deed of April chanrobles.com-red
6, 1842, but denied that he had committed any acts of bankruptcy. It admitted also the proceedings by himself in the state court to set aside the deed as fraudulent, and the decree and sale as stated above, but insisted that by said proceedings he had acquired a lien on the property which could not be impaired by the proceedings in bankruptcy, and that the proceedings in the state court, having been commenced before those in bankruptcy, could not be affected by those of the district court of the United States.
It is not material to state the answers of the other defendants. To these answers there was a general replication.
At the April term, 1844, the Bourbon County Court passed a decree reciting the sale to Shawhan by the commissioner, Woodyard, and proceeding as follows, viz.:
"It is therefore decreed and ordered that the said purchases made by the said Shawhans be and the same are hereby confirmed; that the amounts so decreed to said Shawhans be and the same are hereby extinguished and satisfied by the aforesaid purchases made by them except as to said balance of $149.34, which was decreed to the Shawhans above the amount of their purchases. That a writ of possession issue in favor of said John L. Shawhan, to put him into the possession of said tract of land mentioned in the complainant's bill; that Thomas B. Woodyard, the commissioner herein, convey all the right and title of the defendants, Brandon and William A. Withers, in and to said tract of land, to said John L. Shawhan, by deed of special warranty, warranting the title of the same against the claims of the said Benjamin Brandon and William A. Withers, and all persons claiming by, through, or under them, but not against the claim or claims of any other person or persons whatever."
The decree then proceeded to regulate certain details.
In June, 1844, the bill filed by Wherritt in the district court of the United States came on for hearing, when the complainant prayed that the defendants might be ordered to pay over the amount of sales of the personal property which had been sold under the authority of Bourbon County Court. A reference took place to a master in chancery, upon the coming in of whose reports the court passed the following final decree on 10 June, 1844:
"This cause having been heard at this term and argued by counsel, thereupon, on consideration thereof: "
"It is adjudged by the court that the complainant was invested with all the estate which was of said Brandon at the time he became a bankrupt, and that the defendants did not, by their after-commenced suit and proceedings therein had
(with notice of his act of bankruptcy), obtain a right to have it thereby subjected exclusively or first to the satisfaction of their demands, and that the defendants, John L. Shawhan, Daniel Shawhan, George H. Perrin, Benjamin Berry, Catharine Snodgrass, and Isaac Miller, by the subsequent sales of the movable property by them so caused, did become, on the demand of the complainant here made, and are each of them, liable for his, their, and her proper portion of the proceeds thereof whereof they thus wrongfully obtained the benefit, and must pay the same, together with the interest thereon, to the complainant for the purpose of equal distribution required by the statute, and it is adjudged that the sale of the land so afterwards caused by the defendants was wrongful, and assailed here by the complainant, was and is ineffectual, and did not invest the defendant, John L. Shawhan, the purchaser, with the right thereto, in opposition to the title which had previously passed by decree of bankruptcy of its holder so declared, and was vested in the complainant as the assignee so appointed, but he said Shawhan, by the assertion of his pretended claims so founded, has and does injuriously embarrass the title of the complainant."
"It is therefore ordered, adjudged, and decreed that the defendant John L. Shawhan do, on or before the first day of July next, execute to the complainant, as assignee of the bankrupt estate of Benjamin Brandon, a deed of release of all right, title, and interest claimed by him, Shawhan, in and to the tract of land whereon the said Brandon resided, containing 350 acres, more or less, in the County of Harrison, in the bill and answers mentioned, with covenant of warranty against all persons claiming by, through, or under him."
"And it is adjudged and ordered that said Shawhan do, on or before the said first day of July next, deliver to the complainant the possession of the said land."
The decree then went on to specify the amounts to be paid &c.
From this decree there was an appeal to the Circuit Court of the United States for the District of Kentucky.
On 22 November, 1844, the circuit court affirmed the decree of the district court.
The defendant appealed to this Court, and the cause came up on this appeal. chanrobles.com-red