1. Where a wife lends to her husband money which is her separate
property upon his promise to repay it, it creates an equity in her
favor which a court of equity will enforce in the absence of
fraud.
Page 108 U. S. 67
2. If the husband, being insolvent, mortgages real estate to
secure such a debt to his wife, previously incurred, a court of
equity will not set aside the mortgage as fraudulent against the
assignee in bankruptcy if the wife was ignorant of the insolvency
and if there was no fraud.
3. One of two partners files a voluntary petition in bankruptcy,
alleging that the other partner will not join him, and praying to
have him declared a bankrupt.
Held that this, as to the
other partner, is a case of involuntary bankruptcy within the
meaning of the Act of June 22, 1874, c. 130, § 10, 18 Stat.
180.
4. On a reference in equity to a master, the findings of the
master are
prima facie correct. Only such matters are
before the court as are excepted to, and the burden of sustaining
the exception is on the objecting party.
This was a suit in equity by an assignee in bankruptcy to set
aside a conveyance of real estate made shortly before the
bankruptcy by the bankrupt to his wife through the intervention of
a third party. The following extracts from the report of the master
show the facts found by him:
"On the 2d day of August, 1876, John R. Medsker and wife
conveyed the land described in the bill to Cyrus J. McCole, who, on
the 4th of same month reconveyed the same to the wife, Elizabeth
Medsker, the defendant. At the time of these transfers, the land
belonged to John R. Medsker in fee simple."
"On the 1st day of December, 1876, one Poe, with whom Medsker
was in partnership in the hardware business, filed his petition
(voluntary) in bankruptcy alleging that Medsker would not join him
and making him a party, praying that he be adjudged a
bankrupt."
"On the 29th of December, 1876, Medsker comes in, confesses
bankruptcy, and is adjudged accordingly."
"* * * *"
"The defendant, the evidence shows, married the bankrupt Medsker
some thirteen years ago. During the last ten years, her husband
came into possession of moneys belonging to her, proceeds mostly of
lands, inherited from her father, amounting in the aggregate to
$5,600. She expressly testifies that he agreed to return it to her,
and she always claimed that he was her debtor to that amount. Under
the evidence, I think there is no doubt she was a creditor at the
time of the conveyance. I think the evidence shows that he was
insolvent also at that time, though not that she knew it. I think
the conveyance was made
Page 108 U. S. 68
and accepted to prefer her to other creditors. Under the
evidence as to the value of the land, which is conflicting, I
cannot find that his indebtedness to her was not a reasonable
consideration for the conveyance of the land, or that there is such
great disparity between the land and the debt it was conveyed to
satisfy as to indicate bad faith and a purpose to defraud other
creditors."
The master found as law that the bankruptcy was involuntary on
Medsker's part; that the transaction was not void under the
statute, and that it was not void for fraud.
The assignee's counsel excepted to this report. 1st. That the
evidence showed that Medsker was a voluntary bankrupt. 2d. The wife
was not a creditor, and knew of the insolvency when the security
was taken. 3d. The conveyance was made with intent to defeat and
defraud creditors, and they also excepted to the conclusions of
law. The court sustained the exceptions and decreed that the
conveyance should be set aside, from which decree the wife
appeals.
MR. JUSTICE MILLER delivered the opinion of the Court.
This is a bill in chancery, brought by Bonebrake as assignee
Page 108 U. S. 69
in bankruptcy of John R. Medsker against said Medsker and his
wife.
The object of the bill is to subject to administration, as part
of the assets of the bankrupt, a farm of 162 acres of land, on
which Medsker and his wife were living, the legal title of which
was in Mrs. Medsker.
It appears that on August 2, 1876, Medsker and wife conveyed
this land to McCole, who, on the 4th day of the same month,
conveyed it to Mrs. Medsker, the consideration in each deed being
recited as $8,000.
On December 1, 1876, one Poe, with whom Medsker was in
partnership in the hardware business, filed his petition in
bankruptcy, alleging that Medsker would not join him, and making
him a party, and praying that he be adjudged a bankrupt. On the
29th of that month, Medsker came in and confessed himself a
bankrupt, and was so adjudged.
The charging part of the bill, as regards the invalidity of the
title conveyed to Mrs. Medsker by these two deeds, reads as
follows:
"On that day, to-wit, August 2, 1876, within four months of the
time of filing said petition in bankruptcy, the said John R.
Medsker, being the owner, in his own right, of the real estate
above described and being indebted as aforesaid, with the
fraudulent intention of defeating the operation and effect of the
bankrupt law, and with the fraudulent intention of preventing his
property from being distributed and applied in payment of his
debts, as provided for in the bankrupt law, and with the intention
of defrauding and cheating his creditors, and with the intention of
preferring, in violation of the provisions of the bankrupt law, a
pretended claim of the defendant Elizabeth Medsker, which claim,
your orator says, was unjust and incorrect, and not a valid and
legal claim against said John R. Medsker, the said John R. Medsker,
together with his wife, the defendant Elizabeth Medsker, did
execute, without any consideration whatever, to one C. J. McCole,
who was a party to such fraudulent purpose, a deed of conveyance of
said real estate, and the said grantee, C. J. McCole, in pursuance
of the previous understanding and agreement, and for the purpose of
carrying out the fraudulent intent before expressed, did convey
said real estate to
Page 108 U. S. 70
the defendant Elizabeth Medsker, wholly without any
consideration, on the 4th day of August, 1876."
"And your orator states that said Elizabeth Medsker was fully
cognizant of the fraudulent and wrongful intention of said John R.
Medsker, and participated in the same and joined in the deed to
McCole for the purpose of carrying out the same, and accepted said
fraudulent conveyance from C. J. McCole with full knowledge of its
purpose, and with the intention of carrying out said fraudulent
purpose."
To this bill Medsker and his wife filed their answer, under
oath, in which they admit the conveyances and the bankruptcy
proceedings, but denying all fraud in the transaction, and that
Medsker was in failing circumstances when the deeds were made or
that they knew or believed he was unable to pay his debts. They
aver that after said conveyances were made a large part of the
indebtedness of Poe and Medsker was paid off in the ordinary course
of business.
They further allege that the conveyances mentioned were made in
order and for the express purpose, and for no other purpose, of
paying a debt of $5,700 which Medsker owed his wife, and the
interest accumulated thereon, for money loaned by her to him, which
he had promised to repay to her on demand.
It is evident that the bill is framed upon the idea that section
5128 of the Revised Statutes was in force, and that the periods
within which such conveyances by an insolvent could be assailed as
void under the bankrupt law were four and six months, and all its
allegations seemed aimed at such acts as would be unassailable
after those periods. But the act of 1874 has shortened these
periods to four and two months in cases of involuntary bankruptcy.
18 Stat. 180, c. 390, § 10.
We do not doubt that Medsker's was a case of involuntary or
compulsory bankruptcy within the meaning of this amendment. The
distinction intended by this language is clearly between the cases
in which the bankrupt himself and of his own volition initiates
proceedings in bankruptcy and those in which they are commenced by
some one else against him.
In the one case it is voluntary, and in the other
compulsory.
Page 108 U. S. 71
It is not a voluntary bankruptcy if the man is forced into it
against his will by his partner, any more than by anyone else, and
it is compulsory and involuntary if he refuses to join in such case
and is forced into it, as much as in any other enforced
bankruptcy.
These deeds cannot be impeached, therefore, on the grounds of
preference or payment in violation of the bankrupt law.
But whatever may have been the case in the mind of the pleader
who drew the bill, there is language which, if liberally construed,
may be held to charge that these conveyances were void or voidable
as being made with the intention of defrauding and cheating
creditors generally, and without any valuable consideration.
In this view, the bill was very loosely drawn, but as issue was
taken on it and testimony produced, we will inquire into its effect
as proof of the charge.
When the pleadings were made up, an order was entered, without
objection, referring the case to a master to take the evidence and
report his finding thereon. He reported that Medsker had received
at various times during the ten years preceding his bankruptcy
moneys belonging to his wife, mostly proceeds of land inherited
from her father, amounting in the aggregate to $5,600, and that he
had agreed to return it to her, and that she had always claimed
that he was her debtor to that amount. He therefore finds she was a
creditor at the time of the conveyance. He also finds that Medsker
was insolvent at that time, and that his wife did not know it, and,
on the whole, that the allegations of the bill are not
sustained.
Exceptions to this report were filed which were sustained by the
court, and a decree rendered for the assignee.
The evidence taken by the master was reported with his findings,
and the case seems to have been treated by the court below without
much regard to the finding of the facts by the master or any
special regard to the exceptions made to his report. This is not
correct practice in chancery cases in the circuit courts of the
United States, whatever may be the rule in the state courts.
Page 108 U. S. 72
The findings of the master are
prima facie correct.
Only such matters of law and of facts as are brought before the
court by exceptions are to be considered, and the burden of
sustaining the exception is on the objecting party. In the case
before us, we are inclined, after a careful examination of the
testimony, to concur with the master's report. It is altogether a
matter of the weight of evidence.
1. It is denied that the money was received of the wife by the
husband, and, if received, that it was a loan.
The testimony leaves no doubt that there was received from the
estates of the wife's deceased father and brother at different
times the aggregate sum of $5,700. The wife swears positively that
she loaned these sums to her husband, who repeatedly promised to
pay her; that at one time, more than a year before the bankruptcy,
they had sharp words or ill feeling about it, and he told her he
had nothing but the farm and would convey that to her, and that the
conveyances finally made were in pursuance of his repeated promise
to do so. All this is wholly uncontradicted.
2. Much testimony is taken to prove that the price was so
inadequate as to show fraud, though no such charge is made in the
bill.
The fair result of all the testimony on this point is that the
land was worth about $8,000, the sum recited in the conveyance, and
if interest be computed on the $5,700 from the periods at which the
various sums were received, it will amount to the full value of the
land, if not more at the time the deeds were made.
3. There is no reason to disbelieve Mrs. Medsker when she swears
positively that she did not know nor suspect her husband's
insolvency until bankrupt proceedings were commenced.
Her statement is confirmed by the allegation, undisputed, that
between the time of the conveyance and the petition in bankruptcy
$4,000 of their debts were paid, and the bill alleges that their
debts were only $5,000 in excess of their assets.
4. The master who was present and heard Mrs. Medsker testify,
and could see her manner, and is therefore better able to determine
the weight due to her testimony, says he has no
Page 108 U. S. 73
doubt she was a creditor, and was in ignorance of Medsker's
insolvency.
Dean v. Pearson, 102 Mass. 101.
5. The conveyance first to McCole, who paid nothing, but took
the title in trust for Mrs. Medsker, and from him to her, was to
satisfy the common law inability to make a strict conveyance from
husband to wife, and is no evidence of fraud.
In the case of the
Atlantic National Bank v. Taverner,
130 Mass. 409, that court says:
"The question whether a loan by the wife to the husband of
money, which is her separate property, upon his promise to repay
it, creates an equity in her favor, which a court of equity will
enforce, has not been decided in this commonwealth. But it has
generally, if not uniformly, been decided in the affirmative in
other courts,"
for which numerous cases are cited. It is added:
"That the jury in this case having found that the money
delivered by the wife to the husband was by way of loan and not of
gift, and that his subsequent conveyance of land through a third
person to her in repayment of that loan was not made with the
purpose of hindering, delaying, or defrauding creditors, that
conveyance, to satisfy his equitable obligation to his wife, was
not a voluntary conveyance, and was valid against his creditors.
Bullard v. Briggs, 7 Pick. 533;
Forbush v.
Willard, 16 Pick. 42;
Stetson v. O'Sullivan, 8 Allen
321;
French v. Motley, 63 Me. 326;
Grabill v.
Mayer, 45 Penn.St. 530;
Babcock v. Eckler, 24 N.Y.
623;
Steadman v. Wilbur, 7 R.I. 481."
Such is precisely the case here, as reported by the master, and,
as we think, supported by the evidence, and
The decree of the circuit court is therefore reversed and
the case remanded with directions to dismiss the bill.
