Drury v. State Capital Bank of Eastern Shore Trust Co.

Parke, J., delivered the opinion of the Court. 'On the day of its date, the defendant J ames O. Drury became the irregular accommodation indorser, before delivery,' ⁸⁷ of the promissory note, elated June 12th, 1923, of H. Clay Powell to the State Capital Bank of the Eastern Shore Trust Company for the sum of $1,000. This indorsement was made for the benefit of Powell, and, as an inducement to the loan, the indorser represented to the bank that he was the owner of valuable real estate in Anne Arundel County. At the date of the execution of the note*, the defendant Drury and his sister, M. Emily Drury, each owned an undivided one-half interest in two parcels of land in Anne Arundel County of one hundred and seventeen and one-half acres and of one hundred and fifty acres, respectively. On October 19th, 1926, the defendant Drury, who was unmarried, conveyed his undivided one-half interest in these two tracts of land to his sister, M. Emily Drury, the other defendant.

The note was not paid, and a judgment was obtained on April 18th, 1927, in the Circuit Court for Anne Arundel County against H. Clay Powell and James O. Drury for the sum of $1,002.67, and an execution was issued on August 7th, 1930, that was returned nulla bona. In the bill of complaint at bar the State Capital Bank of the Eastern Shore Trust Company proceeded on September 30th, 1930, against James O. Drury and IF. Emily Drury, his sister, to set aside the conveyance of Drury to his sister, and to sell the undivided one-half interests conveyed, on the ground that the grant was made with the intent to defraud, hinder, and delay the complainant and other creditors of the said James O. Drury. The bill was filed on behalf of the complaining creditor and of all others who might come in as parties plaintiff.

ISTo other creditor, however, appears on the record. The statute renders void all conveyances made with intent to delay, hinder, or defraud creditors. 13 Stat. Eliz., ch. 5, 29 Eliz., ch. 5. The record does not justify the inference of actual fraud directed against the creditors of the grantor. Actual fraud is, however, not essential.

The statute is concerned with legal, not moral, intent. If the direct and inevitable consequence of an act is to delay, hinder, or defraud creditors, the ¡nesumption conclusively arises that such illegal object furnished one of the motives for the doing of the act, ⁸⁸ and, whatever the real intent, a fraud in law exists, and the actor is not permitted to avert the consequences by his denial that they were fraudulently intended. Fraud within the statute, therefore, does not inevitably impute a corrupt or dishonorable motive. The deed here attacked is sufficient in form to convey the interest in the real property described, and the grant purports to be made upon the receipt of $100 and of other valuable considerations.

So the conveyance possesses the essential elements of a legal contract and will stand, unless it be established by competent evidence that it operates to hinder, delay, or defraud the complaining creditor of the grantor. The parol evidence reveals certain badges of fraud in the transaction. The first is the recital of the payment of $100 when no money was actually passed on the delivery of the deed; and the second is that the grantor transferred all his interest in the real property of which he was then the owner, and left himself without any resources from which the creditor could enforce the payment of his claim. Schaferman v. O’Brien, 28 Md. 565, 575 ; Wilmer v. Placide, 131 Md. 399, 406 , 102 A. 541 .

These circumstances create an inference which throws suspicion upon the transaction, and require the grantee to establish by satisfactory proof good faith and a sufficient consideration for the grant. There are countervailing facts. The conveyance was openly made and recorded on the day of its execution, and full possession of the interests transferred passed and was forthwith enjoyed by the grantee. Furthermore, the testimony is clear that the sister, in complete ignorance of any claim of the plaintiff against her brother, and in entire good faith, demanded and obtained the deed in satisfaction of an indebtedness of the brother to her, after he had left their home, and established a residence in the District of Columbia.

It follows that, if the transfer was made for a full and valuable consideration, the innocent grantee is protected, on the theory that her equity is superior to that of the general creditor, although there may have been a fraudulent intent on the part of the debtor. Waters’ Lessee v. Riggin, 19 Md. 536, 553-554 ; Troxall v. Applegarth, 24 ⁸⁹ Md. 163, 182; Cunningham v. Dwyer, 23 Md. 219, 229, 231, 232 ; Cooke v. Cooke, 43 Md. 522, 531, 532 ; Smith v. Pattison, 84 Md. 344 , 35 A. 963 ; Totten v. Brady, 54 Md. 170, 173 . The grantee, however, did not obtain, the conveyance upon contemporaneously paying" or delivering to the grantor a presently arising, adequate, and valuable consideration for the property, but this was not requisite. Even an obligation which cannot be enforced on account of the provisions of a statute is a valuable consideration, because the party may waive the benefit of the statute, and the transfer will be valid as against creditors.

Thus a debt which is barred by the statute of limitations (Knight v. House, 29 Md. 194, 200 ; Wilmer v. Gaither, 68 Md. 342, 345 , 12 A. 8, 253 ), or a discharge in bankruptcy or insolvency is a good consideration for a conveyance. Wilson v. Russell, 13 Md. 494, 528 ; Katz v. Moore, 13 Md. 566, 569, 573 ; Webster v. LeCompte, 74 Md. 249, 256, 257 , 22 A. 232 ; compare: Linz v. Schuck, 106 Md. 220, 230 , 67 A. 286 ; Harper v. Davis, 115 Md. 349, 351 , 80 A. 1012 ; Lyell v. Walbach, 113 Md. 574, 579 , 77 A. 1111 . A. fortiori, an existing debt or liability is a valuable consideration. Holbird v. Anderson, 5 T. R. 235; Griffith v. Bank, 6 G. & J. 424 ; Armstrong v. Fahnestock, 19 Md. 58 ; Busey v. Reese, 38 Md. 264, 269 ; Christopher v. Christopher, 64 Md. 583, 585 , 3 A. 296 ; Bayne v. State, 62 Md. 110, 119 .

And a transfer to a creditor, whose equity is similar to that of other subsisting general creditors, gives him a legal title, which, under the universal rule that where equities are equal the legal title must prevail, is a good consideration within the proviso of the statute which saves the rights of bona fide purchasers. Preferences are not fraudulent, and, aside from a statute of insolvency or bankruptcy, an innocent creditor who can secure enough to satisfy his claim is entitled to hold it against other creditors, although the debtor is insolvent. Bruce v. Smith, 3 H. & J. 499 ; Cole v. Albers, 1 Gill, 412 ; Glenn v. Grover, 3 Md. 212 ; Anderson v. Tydings, 3 Md. Ch. 167 ; Mayfield v. Kilgour, 31 Md. 240, 244, 245 ; Crane v. Barkdoll, 59 Md. 534 ; Smith v. Pattison, 84 Md. ⁹⁰ 344, 35 A. 963 ; Wareheim v. Bayliss, 149 Md. 103, 107 , 131 A. 27 ; Merchants’ Bank v. Page, 147 Md. 607, 609 , 128 A. 272 ; Fuller v. Brewster, 53 Md. 359 ; McCauley v. Shockey, 105 Md. 649 , 66 A. 625 . This rule is subject to the qualification that the property transferred is fairly equivalent to the debt satisfied.

Wareheim v. Bayliss, 149 Md. 103, 107 , 131 A. 27 ; Fuller v. Brewster, 53 Md. 361 ; Crooks v. Brydon, 93 Md. 643 , 49 A. 921 ; Commonwealth Bank v. Kearns, 100 Md. 208 , 59 A. 1010 ; Thompson v. Williams, 100 Md. 195 , 60 A. 26 ; Downs v. Miller, 95 Md. 607 , 53 A. 445 ; Wilmer v. Placide, 131 Md. 399 , 102 A. 541 ; Wise v. Pfaff, 98 Md. 581 , 56 A. 815 ; Cone v. Cross, 72 Md. 102, 106 , 19 A. 391 ; Hull v. Deering, 80 Md. 424, 432 , 31 A. 416 . But mere disparity between the real value of the property conveyed and the consideration does not constitute an inadequacy of consideration' that would require the deed to be set aside, but, in equity, it would remain as security for the consideration to protect a bona fide grantee. Hinkle v. Wilson, 53 Md. 287, 293, 294 ; Benson v. Benson, 70 Md. 253, 260 , 16 A. 657 ; Cone v. Cross, 72 Md. 102, 106 , 19 A. 391 ; Hull v. Deering, 80 Md. 424, 432 , 31 A. 416 ; Tyner v. Johnson, 119 Md. 627 , 87 A. 266 . The disparity sufficient to justify the inference of fraud must be so glaring as to satisfy the court that the conveyance was not made in good faith.

Fuller v. Brewster & Co., 53 Md. 358, 361, 363 ; Crooks v. Brydon, 93 Md. 640, 644 , 49 A. 921 ; Commonwealth Bank v. Kearns, 100 Md. 202, 208, 209 , 59 A. 1010 . So a debtor may, for a fairly equivalent consideration, whether presently arising or being the satisfaction of an antecedent debt, transfer in good faith all or a part of his property to one of the creditors. Supra. This rule has found statutory expression in the Uniform Eraudulent Conveyance Act (Code, art. 39B).

Under this act the conveyance must be in good faith and upon a fair consideration, which, inter alia, is declared to be given for the property when, in exchange for the property, as a fair equivalent and in good ⁹¹ faith, an antecedent debt is satisfied. Sections 3(a) and 4. Merchants’ Bank v. Page, 147 Md. 607 , 128 A. 272 ; Wareheim v. Bayliss, 149 Md. 103, 107 , 131 A. 27 ; Pauly v. Schultz, 199 Wis. 107 , 225 N. W. 745 ; Schlecht v. Schlecht, 168 Minn. 168 , 209 N. W. 883 ; Klaseus v. Meester, 173 Minn. 468 , 217 N. W. 593 ; Watson v. Goldstein, 174 Minn. 423 , 219 N. W. 550 ; Steinberg Co. v. Pastive, 97 N. J. Eq. 52, 129 A. 201 . While it is a circumstance to be considered in ascertaining the existence of a valid indebtedness between the brother and sister, the lengthy duration of the account, without its being stated or evidenced by a written obligation, is not alone sufficient to make an honest claim an insufficient basis of consideration, as is illustrated by the decisions in Fuller v. Brewster & Co., 53 Md. 358, 361, 363 ; Crane & Sons v. Barkdoll, 59 Md. 534, 536 ; Commonwealth Bank v. Kearns, 100 Md. 202, 204, 205 , 59 A. 1010 .

Nor is the grantee, when the deed is assailed as fraudulent, precluded from showing that the actual consideration was a subsisting indebtedness of the grantor to the grantee by the recital in the conveyance that it was in consideration of $100 paid and of other valuable considerations. The satisfaction of an antecedent indebtedness is a valuable consideration, and embraced within the meaning of the phrase, “other valuable considerations.” Cunningham v. Dwyer, 23 Md. 219, 228-233 ; Diggs v. McCullough, 69 Md. 592, 608, 609 , 16 A. 453 ; Merchants’ Bank v. Page, 147 Md. 607, 609 , 128 A. 272 ; Braecklein v. McNamara, 147 Md. 17, 20-22 , 127 A. 497 ; Thompson v. Williams, 100 Md. 195 , 60 A. 26 . See Code, art. 39B, sec. 3(a), Uniform Fraudulent Conveyance Act. These rules and principles are to