Tunnell v. Jefferson

The Chancellor stated the following reasons for his decree:—

In this case the Chancellor decreed in favor

1. The Chancellor considered the sureties incapable of talcing the bond on which their judgment was entered and the property of the principal, both personal and real, sold by virtue of execution process issued thereon in payment of a debt claimed as due and payable, to the amount of $15,000, when as sureties they have not paid the same or any part thereof; for until payment the surety is not a creditor, and there can be no debt due from the principal to his surety ; therefore, the simple liability as surety, cannot constitute’ a valuable consideration for a bond conditioned for the payment of a sum of money as a debt. The bond, for want of a valuable consideration, being invalid in relation to the rights of the bonafide creditors of the principal, the judgment entered thereon, and the execution and sale, cannot be, as against créditors, sustained or held in any respect, in equity, as effectual.

2. The Chancellor considered that the liability of surety would constitute a good and sufficient consideration for a bond of indemnity, with a collateral condition, under which sureties might secure by judgment, a lien on the real estate of the principal, which on any damage ensuing to the security, or payment made by surety and legally ascertained, might be rendered available; but the fact of payment of damage would have to be determined upon breeches assigned, and by verdict or inquisition, established before execution process could issue against the principal or his property. This mode of securing indemnity to sureties, benefits the surety and never can prejudice the creditor, for the payment of whose debt the surety is liable; as the surety can only reach the property of the principal when he has paid the creditor and thereby, to the extent of such payment, stands in the place of the creditor, and it may also prove beneficial to the creditor; for if the lien should on such a bond be secured by judgment, so as to bind the land of the principal, and the same be also subject to the lien of subsequent judgments, the creditor might be entitled to obtain the advantage resulting from the priority of liens, and such lien would thereby be applied to discharge the debt of the creditor, out of the property of the principal or debtor.

3. The Chancellor considered all sureties entitled to relief in equity, on payment by contribution from co-sureties, or after de

4. The Chancellor considered, that sureties in administration bonds or bonds of executors and guardians, would not as other sureties, be entitled to relief, as against their principal, when the relief sought is that of indemnity, inasmuch as the act of assembly for establishing courts of law and equity within this government, section 25, provides: “ That nothing herein contained shall give any power or authority to hear, decree or determine in equity, any matter, cause or thing wherein sufficient remedy may be had in any other court or before any other magistrate or judicature in this government, either by the rules of the common law or according to the tenor and directions of the laws of this government; but that when matters determinable at common law shall be brought before them in equity, they shall refer or remit the parties to the common law. ' -

Inasmuch then, as the act of assembly of this State confers jurisdiction over this matter of counter security by executors, administrators and guardians, upon the Orphans’ Court, and the remedy there provided is summary and in every respect ample and sufficient, according to the tenor and directions of the laws of-this government, therefore, it seems to be a necessary consequence, that the Court of Chancery in this State, has no power or authority to hear, decree or determine in equity any such matter.

5. The Chancellor also considers, in accordance with the case of Red'path vs. Qomly, as decided on appeal, in the Court of Errors and Appeals, that a debtor had a right to give his creditor a bond for a debt bona fide due or existing at the time of executing the bond, or to secure the payment of the same by judgment confessed; but it does not extend to the giving a bond or confessing a judgment by a principal to his surety, when there is no debt due.

6. The Chancellor in the decree made, only embraced the proceeds of sale under the fi. fa. and vend, ex., being the private property of Greorge Tunnell, and excluded the trust funds, which yet remain in the hands of the sureties and were collected by them under the assignment. f"

The Chancellor considered the taking of the bond and the execu

And further, the Chancellor considered the assignment and the circumstances under which the same was taken and abandoned ; the re-conveyance by the assignees; followed by the execution of the bond to the same persons, not being creditors; and the subsequent proceedings upon said bond, by which the property of the said G. Tunnell was sold and applied to the use and benefit of persons not having any debt due, as fraudulent in respect to the complainant, a bona fide creditor of the said George Tunnell.

By the Court:—

1. By the common law, a principal may pledge or assign his property to his surety, in trust, with the view of honestly and fairly indemnifying him against the engagement which he has entered into, for the benefit, and at the request of the principal. Such pledge or assignment may be given before the principal has made default, or the surety been called upon to pay. It is founded upon a sufiicient consideration; but the law considers the engagement of the surety, as constituting in itself, a valuable consideration. The preference thus given over the creditors of the principal, if done bona fide, without any fraudulent design, and with no other intent than to indemnify the surety, is not illegal, or contrary to any principle of public policy. (See Stevens et al vs. Bell, 6 Mass. Rep., 342 .)

For the same reason, the principal, with the view to indemnify the surety, may give him an absolute bond, conditioned for the payment of a certain sum, before the day has arrived for the payment of the money or the performance oí the act or duty by the principal, for which the surety engaged to be answerable; and if the money be not paid by the principal, at the day named in the bond, the surety may proceed to judgment and execution for its recovery.

The cases of Toissant vs. Martinnant, 2 Term Rep., 100, and Penny vs. Foy, 8 Barn. & Cress., 11; (15 Com. Law., 147,) are authorities to show, that such a bond is founded on a sufficient consideration; and that it cannot,be objected to, as fraudulent, from the circumstance of its being made payable before the day on which

But if the surety, instead of an absolute bond, takes a bond merely to indemnify him, he must show that he has been actually damnified; because until then, the bond is not forfeited. Per Tenterden, C. J., Penny vs. Foy, cited in Theobold on Prin. and Surety, 231, (1 Law Lib., 137.)

2. The provision in the assignment or deed of trust, that any surplus which might remain after the indemnification of the sureties, should revert to the principal; is no indication of fraud; for the law implies such a resulting trust, without the provision. (2 Kent's Com., 536, note d.) The deed openly shows the nature of the trust, and the destination of the surplus; so that the creditor with such information, may, if he thinks proper, reach it by the aid of a court of equity, or by means of the process of attachment. Assignments of this description in favor of creditors, have been held to be legal, in Livingston vs. Bell, 3 Watts, 198 ; Rahen vs. McElrath, 6 Watts, 151 , and see McCulloch vs. Hutchinson, 7 Watts, 436 ; and no distinction exists, in such cases, between the creditor and the surety.

If the security pledged or conveyed in trust, for the benefit of creditors and sureties, be delivered over agreeably to the conveyance, and be not manifestly excessive, and greatly more than adequate to the debt or indemnity, no injury is done to other creditors ; if there be a stipulation, that the surplus over the debts and indemnities, shall enure to the use of the debtor. Such surplus may be secured by attachment at the suit of any other creditor, and therefore, is not a fraud on any creditor. There is no distinction between a pledge given or a trust created to secure creditors, and a pledge or trust to secure to sureties an indemnity against their liabilities. (Per Parsons, C. J., 6 Mass. Rep., 342 -3, Stevens vs. Bell.)

So also in the case of a recovery at law upon the absolute bond, after it is forfeited; and the sureties are not afterwards damnified by being obliged to pay for the default of their principal, they might be compelled by a bill in equity, to account to the creditors for the money they had received, or to pay it over by the process of attachment.

3. The bill charges that George Tunnell, being deeply indebted, and in failing circumstances, and in contemplation of insolvency, executed the assignment and bond; and that they, and the judg

Respecting assignments, the act declares, that where a person in contemplation of insolvency, or of taking the benefit of the insolvent laws, makes an assignment of his property for the benefit of his creditors, and under its provisions or otherwise, prefers one or more creditors, to the others, that such assignment shall be deemed fraudulent and void.

The defendants expressly deny in their answer, that any of them were actuated by any fraudulent intent or purpose whatever; or that George Tunnell ever intended to give a voluntary preference or fraudulent priority of lien in favor of his creditors. On the contrary, they aver that there was no other object than to obtain an indemnity for themselves and their co-securities, for the large amount of money appearing to be due and payable by George Tunnell, on his accounts, as one of the administrators of Miers Burton, deceased, for which the sureties of George Tunnell were liable." They deny that either the assignment or bond was voluntary on his part, or that he, or any of the defendants considered him insolvent, or likely soon to be so; but aver that he gave the assignment and bond with much reluctance, and solely at their instance and urgent solicitation, and upon their expressed determination, in case of his refusal, to resort to legal proceedings to take his property from him. They

But the assignment, supposing it be void by reason of the stipulation in favor of George Tunnell respecting the surplus, must be excluded from the consideration of this case; because the sureties never claimed under it, but refused to accept the trust. They re-conveyed the real estate to George Tunnell; and no part of the personal property was demanded by, or delivered to them, by virtue of the assignment. They had a right to abandon it, as they deemed it an invalid security; and to take the bond with warrant of attorney, which was free from objection. But in my opinion, as both were founded upon a sufficient consideration, and are not opposed to any principle of the common law, or to the provisions of the act of assembly, the complainant’s claim to relief, upon the ground of the alleged fraudulent character of the assignment and bond, cannot be sustained.

But there is one ground arising out of the circumstances of this case, on which the complainant is entitled to relief, although not mentioned or relied upon in the bill, and entirely unnoticed in the argument. It is alleged in the bill, and admitted by the answer, that seven hundred dollars of the purchase money of the real estate conveyed by the complainant to George Tunnell, remained unpaid; and that the defendants, with a knowledge of that fact, became the purchasers. The complainant h.as, therefore, an equitable lien on the estate for the unpaid purchase money; which lien was not

It is inconsistent with equity and good conscience, as between the vendee and vendor, that the former shall hold the estate and not pay the consideration money; and it is equally inconsistent with justice and equity, that the sureties of the vendee, with full knowledge that he obtained the estate without paying for it, should be permitted through this means, to keep and appropriate it to their use and benefit, in order to indemnify themselves against their liabilities on his account, without paying to the vendor, the balance of the unpaid purchase money. Upon the principles which govern a court of equity, the complainant is entitled to such payment. It is part of the relief asked for in the special prayer for particular relief ; and were it not, yet as it is consistent with, and required by the circumstances of the case made out by the bill, it may be offered under the general prayer for relief.

My opinion is, that so much of the decree of the Court of Chancery as declares the said assignment to be fraudulent and void ; and so much thereof as declares the said bond and judgment thereon, of the sixteenth of August, 1842, to be fraudulent and void as respects the complainant, upon the assumption that they were given without consideration; and that the said assignment and bond are respectively fraudulent and void, on the alleged ground that they contravene the express provisions of the act of assembly; be reversed.

And also, that so much of the said decree as directs the said Charles Tunnell, Isaac H. Houston and Joseph Kollock, to pay into the Court of Chancery the said sum of $653 26, with interest thereon from the 12th of October, 1842, and also the further sum of $2,445, with interest thereon from the 12th of April, 1843; and that the said sums be applied in payment of the judgment of the complainants, and for the benefit of such other creditors of the said George Tunnell as might come in, under the said decree, by becoming parties to the bill; be likewise reversed.

And that so much of the said decree as orders the defendants to pay the costs of the complainant’s suit in the Court of Chancery, be affirmed.

A decree ought to be made by this court, as follows:—

1. That the defendants shall pay to Paynter Jefferson, the sum of

2. That the defendants, Charles Tunnell, Isaac H. Houston and Joseph Kolloek, shall file a statement upon oath, showing the amount of the liabilities which they and the other sureties of George Tunnell in his administration and guardian bonds, are, or shall be, absolutely bound to pay; including the costs and charges which have been or may be incurred by them, as sureties.

3. That the last said defendants shall file an account in the Court of Chancery, charging themselves, with the proceeds of sale of the personal and real estate of George Tunnell, arising from the execution process issued upon their judgment against him, of the sixteenth of August, 1842, first -deducting the costs of the said judgment and execution process. And after such deduction being made, they shall charge themselves'with interest on the proceeds of sale of the personal property, from the twelfth day of October, 1842, and with interest on the proceeds of sale of the real property, from the twelfth day of April, 1843. And as against the charges in relation to the proceeds of sale of the real estate, they shall credit themselves with the amount of the said principal, interest and costs, herein before ordered to be paid to the said Paynter Jefferson.

4. That the last said defendants shall also charge themselves in the said account, with all sums of money received by them,, and with which they may be justly chargeable, on all judgments, bonds, bills, notes, book accounts, and other debts and personal property due or belonging to George Tunnell in his own right, or as administrator of Miers Burton, deceased, or as guardian of the minor children of Miers Burton, deceased, which have been transferred by him to the defendants, for the indemnification of themselves and their co-sureties ; and the said defendants shall credit themselves with all costs, charges and reasonable expenses in relation to these transactions, to which they may be justly entitled.

5. The balance with which the last said defendants may be justly chargeable on the said account, shall be retained by them, to be applied to the indemnification of themselves and their co-sureties. And the surplus, if any remain after such indemnification, shall be paid into the Court of Chancery, to be distributed among the creditors of the said George Tunnell, under a decree of the said court, in

Exceptions may be taken to the statement and account aforesaid, or to either of them, according to the principles and practice of the Court of Chancery.

6. Costs in Court of Appeals to be paid by appellants.

The character of this transaction is not left in any doubt. It was an attempt by George Tunnell to indemnify the sureties in his several guardian bonds by means, first, of a regular assignment on the sixteenth of August, 1842, of all his property, real, personal and mixed, to three of them, with an express trust for the eight others, by name, and a resulting trust for himself. This security was abandoned, under the impression that it was prohibited by our act against fraudulent insolvency. The grantefes, or assignees, took possession of no part of the property under this assignment; but repudiating the same, as to any action under it, they further executed a reconveyance of the real property to George Tunnell.

But, for the same purpose of securing an indemnity to these sureties, Tunnel on the same day, executed to three of them, in trust also for the eight others, an absolute bond and warrant of attorney in $30,000, conditioned for the payment of $15,000, upon which judgment was confessed, and in execution of which all of Tunnell’s property,was sold. For the same purpose and on the same consideration, he assigned to them certain judgments and other debts due him, which they collected and received,' holding the proceeds for their indemnity as aforesaid. -

The leading question in the case is, whether this transaction is lawful in respect to the other creditors of George Tunnell, who had not before the sixteenth of August, 1842, obtained by judgment or execution any lien on his property ?

' It does not appear that George Tunnell, at the date of this bond, contemplated insolvency; or that he, or his sureties,. considered him insolvent; or that he was insolvent. There were no judgments against him, and he was in possession of a considerable property, real and personal, but his guardian accounts showed large balances due to his wards, for which these eleven securities were answerable, and at their urgent solicitation he executed this bond, to secure the debt which he. owed the minors, and thus indemnify the sureties.

Preferring creditors by a debtor in failing circumstances, is not fraudulent; it is only prohibited when in connection with assignments under the insolvent laws, or voluntary assignments made with the intention or in contemplation of taking the benefit. A failing debtor may lawfully pay a just debt, or many debts, even to the extent of all his property; and if he may pay such debt by an application of his property, I see no reason why he may not secure it by a transfer, assignment, judgment lien or mortgage thereof. His power to do so is conceded in the cases cited by complainant’s counsel from Cowen and Wendell and Johnson, which cases are decided under the New York statute of frauds, prohibiting conveyances to the use of the grantor, and all conveyances made with intent to delay, hinder or defraud creditors; either of which would be void at common law, or under the statute of Elizabeth. But merely preferring creditors either by assignment or security by Iren, is not within that statute, and would be lawful there or here, unless the mode.of performance so connects itself with proceedings in the insolvent court, actual or contemplated, as to fall within the special restrictions of our act of assembly. Hence in Waters vs. Comly, 3 Harr. Rep., 129 , this court decided that a failing debtor might pay any one of his creditors, or give a judgment for a bona fide debt, securing payment of it in full.

Our act of assembly adopts the principle of equal distribution, after insolvency, and prohibits preferences in assignments made “ in contemplation of insolvency, or in contemplation of taking the benefit of the insolvent laws;” being assimilated, in this respect, to the English bankrupt law. The securities taken in this case, whether the deed or bond, if unlawful, must be so either under this act, or at common law, or under the statute of Elizabeth. The last prohibits feigned and covinous conveyances, bonds, &c.,. made to- do-

It does not apper to me that the bond given in this case to secure the amount due on the guardian accounts was fraudulent at common law or by statute; nor that the deed itself can be regarded, according to the decree of the Chancellor, as “ fraudulent and void, being voluntary and creating a preference contrary to the act of assembly.” The act only prevents preferences given in the deed of assignment of all the debtor’s property for the benefit of his creditors, or such as are made in contemplation of insolvency; and has never been held to prevent a debtor in failing circumstances from paying a debt, executing a bond, or giving a security for a bona fide debt or obligation. (Waters vs. Comly, 3 Harr. Rep., 117 .)

At the time of the execution of these papers, it would have been lawful in George Tunnell to have paid the balances appearing on the guardian accounts in cash; or to have delivered property to the full amount to any person authorized to receive it for the minors; and I cannot perceive how an assignment, or bond to the sureties for the same object, can be deemed fraudulent. It deprived the, other creditors of no rights, except the right- of preference, which they as well as the sureties might have obtained by diligence; it covered no property beyond the just debt, for the trust was expressed on the deed, and the bond was taken as an indemnity; it hindered no one in the collection of his debt, beyond the amount of the wards’ claims, which were equally meritorious debts, having, through the sureties, obtained a legal preference by superior diligence.

If the deed is objectionable in law, it seems to me it is not for giving a preference, for it is not an assignment for the benefit of creditors, in which preferences are prohibited, but for another- featurc which would make an assignment void at the common law, viz: the reservation of a reversionary interest in the debtor. To that extent this deed would probably be held void, and it might vitiate it altogether, ( 2 Pick. Rep., 137 ,) though it is not unquestioned whether this would deprive the creditor, not being a party to the fraud, of the benefit of his security, under it, if that security is otherwise lawful and valid. (5 T. Rep., 420; 8 Ib., 521; 2 Pick. Rep., 131 .) The same objection does not lie against the bond;

' The complainant in this case was guilty of great neglect. He might by ordinary diligence have secured his debt, which he held without even entering judgment, for a period of more than eighteen months, during which time, or before the respondents entered their judgment, no other creditor so much doubted George Tunnell’s solvency, as to enter any judgment against him. If during this time he was thrifltless and improvident, becoming involved in debt and approaching insolvency, the diligent creditor who first took warning, is entitled to the benefit of his diligence, if he merely protects himself, without in any way aiding the debtor to defraud others, and the sureties on whose credit and by whose means this debtor held most of his property, were as much entitled to this protection as any other creditor.

But apart from these questions, upon which the case was presented to the Chancellor, there appears to be sufficient ground for relief to the complainant presented by the bill and not denied, but rather admitted by the answer. The complainant’s demand was for the balance of the purchase money of the lands conveyed to Tunnell, of -whidh the -respondents had full notice at the time of the conveyance

And the respondents should pay the costs of this cause, both here and in chancery; for although the decree of the Chancellor, declaring the bond and judgment fraudulent and void is reversed, the complainant’s equity is sustained to the full extent of his claim, and the obligation of the defendants to pay that claim out of the proceeds of sale of his land conveyed to George Tunnell, is established. Had this obligation been recognized by them and discharged, there would have been no necessity for these proceedings; nor, so far as Paynter Jefferson is concerned, any costs incurred.

Decreed accordingly.