Newell v. Morgan — 2 Del. Ch. 20

Majority

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William Newell and Samuel Newell, vs. Evan F. Morgan, Mary E. Morgan, Eliza Morgan, Thomas E. Morgan and Catharine S. Morgan.

Sussex,

March T. 1836.

Headnote

The oldest judgment creditor at law, having obtained a decree in equity setting aside a fraudulent conveyance to the debtor’s children of land purchased by him prior to the recovery of the judgment, is not entitled to a preference in equity in the distribution of the proceeds of the land sold under a decree. In such case the equitable doctrine of distributing assets among creditors pari passu applies.

Equity will recognize and give effect to a judicial preference at law by judgment or execution ; but such judicial preference arises, not out of the speed of the parties in pressing their claims at law but out of their having obtained a prior legal lien upon the property in controversy.

Bill bt creditors to set aside a eraudulent conveyance.—The defendant, Evan F. Morgan, purchased from Daniel Godwin a house and two lots, situated in Lewis, Sussex County, taking a conveyance of the property in fee simple to his children. The deed recited a consideration of $2000.00, as paid by Evan E. Morgan; the consideration in

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fact consisting of a stock of store goods which Morgan exchanged for the house and lots. The deed was duly acknowledged on the 4th of November, 1831, and recorded on the 25th of September, 1832. At the time of this purchase and conveyance Morgan was indebted to sundry persons, and among others to the complainants, for goods to the value of $664.39. The goods sold by the complainants to Morgan were part of the stock with which he purchased the house and lots. On the 7th day of March, 1831, Morgan gave the complainants his judgment bond for $483.39, abalance then due on their account, payable, with interest, at twelve months; on which bond j udgment was entered the next day in the Superior Court for Sussex County, and at the expiration of twelve months & fieri facias was issued, returnable to the April Term, 1833. The Sheriff returned a sale of goods and proceeds applied to prior executions. The complainants, for themselves and other creditors, then filed this bill against Evan E. Morgan and his children, setting forth the above stated facts; alleging further that EvanE. Morgan had, notwithstanding the conveyance to his children, remained in possession of the property, holding and using it as his own ; and it charged that the sale and conveyance was a fraud upon his creditors. The bill prayed that the conveyance might be decreed to be fraudulent as against the complainant and other creditors; that the title might be considered as having vested in Eoan F. Morgan from the date of the deed ; that he might be held to be a trustee &o; and for general relief.

The answer denied the charge of fraud and the equity of the complainants to relief.

The cause, being put at issue and proof taken, came before the Chancellor,-at the Feb. T. 1835, for a hearing upon the bill, answer, exhibits and depositions; upon which a decree was rendered, declaring the conveyance «fraudulent and void as against creditors of Evan F. Morgan, and directing that the defendants pay to the complain

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ants $570.96, the amount then due on their judgment, in three months, or otherwise that the premises in controversy should be sold and the proceeds brought into Court.

Pursuant to this decree the premises were sold by the Sheriff, on the 18th of July, 1835, for $1130. On the 22d of September, 1835, the sale was returned and confirmed, and the money brought into Court. On the 23d of September, 1835, certain other creditors of Morgan, who had not been parties to the proceeding for setting aside the conveyance, filed their petition, praying to be admitted to come in as parties under the decree and to share in the distribution of the fund. An account was thereupon taken of the creditors of Evan E. Morgan, for ascertaining the amount of these debts and their priorities at law. Erom this account the complainants were found to be the oldest judgment creditors of Morgan.

The cause was heard before the Chancellor, at the March T. 1836, on the question of the distribution of the proceeds of sale among the creditors.

JE. Wootten, for the complainant.

JE. D. Oullen, for the creditors.

My first impressions were in favor of the preference claimed for the complainants.

I have no doubt that wherever a legal right has been established it will be recognized in equity. Wherever a party has established a j udicial preference at law, by judgment or execution,a court of chancery will recognize such preference and give effect to the right. But the term j udicial preference is not used with reference to the speed of the parties in pressing their claims at law, but with reference to their having obtained a prior legal lien upon the property. In this case no such legal lien was obtained by the complain-" ants. Their judgment never bound the property at law.

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ÍTo claim could be asserted against the property, or the fund arising from it, otherwise than through a court of equity. Considering, then, that none of the creditors have obtained a legal priority, I must treat their equities as equal, and adopt the principle of pari passu distribution.

Decree accordingly.

On appeal, the Court of Errors and Appeals, at the June T. 1837, affirmed the decree of the Chancellor, so far as it had declared the conveyance of the property to be fraudulent and void and had directed a sale ; but the appellate court held that the complainants had, by their superior diligence at law, gained a preference in equity, and were entitled to be first paid out of the fund—the other creditors taking the residue pari passu. 2. Harring. R. 225.