BARTLES V. GIBSlJN.
293
bronght on the bonds instead of the judgment, without any advantage of the plea of the statute of limitatiolls running upon the CoupOllS. And tile proposed amenrlment of the defendant Moscow, to set up the statute of limitatiolls against the coupons iucludtJd in the jUlIgment, is not allowed. See ",onstiby v. Keeley, 11 FED. TIEr. 578, and note, 580.
DARTLES,
Jr., v. GmsoN.
(Circuit Court. W. D. Wisconsin. 1883.) 1. FnAUmrl,F.NT CONVEYANCE.
Upon examination of the evidence in tllis case. it appears flint flIP deed Brught to be sel. aside was illlelHil'das a fraud on lhe creditors 01 the grantor, lind the prayer of the hill I hat it be BO dcclared is granted. SAME-KNOWLEDGE OF GUANTEg.
2.
Wherc the grantee in a dee,l made to defraud the crerlitors of the grantor knows of the fraud'IIent inlent of the grantor, or has knowledge of facts sulli. cient to excite the suspicions of a prudent man und put him on inquiry, he makes himself a party to the fraud. OF CONSlDEHATfON.
3.
Where the consideration exprcs<ed in a deccl of land is farhelow t1le value ot the land as known to grantor allll grantt'e, th.s inmlt·qllacy of price is a strong circumslance in the case tendlUgto show a fraud on eleditolsand a secret trust. 4. LUIITATION IN llANKnUPTCY-fiEV. ST. § 5057. Section 5 57 of the Hcvised :::ltatutes is in etIpet a statute of limitations, but, like any other statute of I,m.lations, must be taken auvantage of either lIy demurrer 01' answer, or it Will Le wa.ved. 5. SAME-PLEA AFTER ANSWEU TO ME HITS. Although a court may in its dist:retJOn allOW the plea of statute of limitations to he put in after an answer on the mel'lts, in an t:quity case, under the circumstances of this case such plea cannot be allowcd at that stage of the case. 6. OF FnAUD-LACITE!>. \Vhere a party injnrld by a fraud remains in ignorance of it, withont any fault or want of negligence or care on Ins part, the bar of the stalute of limitations rloes not begin to run until the fraud is discovered, thongh there are no spedal circumstances or elforts on the part of the parl)' committing tIle fraud to conceal it from the knowkdge of the other part.,·; and as, in this the suit was instituted promptly after the discovery of Ihe fraud, the statute is not a hal' to the action, nor c·an compluinant lie held to have been l!.uilty of laches in not sooner in,tit.uting suit.
7.
DrSCIIAllGE OF HAKKIIUPT-Ihn TO SUIT AGAINST GnANTEE.
The decision and order of a bankruptcy court granting II disrharge of a hank. rupt, on an issue made by a eretlilor of the bankrupt, objecting to sneh discharge,cannot be considererl a bar to a SUbSNjUent suit hysuch creditor, as the purchaser of land sold by the !Issignee of the hankrupt, !Igainst a grantce of such land in a conveyance that is a fraud on the creditors of the bankrupt. L'iADEQU.\CY OF VoKSJDEllATfON.
8.
The fraudulent grantee of the bankrupt, in such case, cannot set up as a defense that the cred.tor said land for lc<;s than it was really worth.
In Equity. ,
Pinney If: Sahborn, for complainant. Bingham If: Pierce, for defendant. Before H.\RLAN and BUNN, JJ. . BUNN, J. This action is brought by Charles Bartles, Jr., a citizen of Williamsport, in the state of Pennsylvania, against the defendant, Joseph H. Gibson, a citizen of l\1assachusetts, to set aside as fraudulent a conveyance of an undivided one-eighth interest in a quantity of pine and hard-wood timber lands lying in Lincoln and Chippewa, counties, in the northern portion of this state. The conveyance was made by warranty deed, executed by Charles E. Gibson, also a citizen of Williamsport, in the state of Pennsylvania, to the defendant, Joseph H. Gibson, his brother, who resides in the city of Boston, and dated the fifth day of February, 1878. At the time the conveyance was made Charles E. Gibson was insolvent, and owed very large sums of money. He had become security for one Peter Herdic, by indorsement and otherwise; for sums amounting to upwards of $160,000, and for the Williams Rubber Company, of Williamsport, in the sum of sno,ooo, so that his liabilities were many times the amount of all his assets. On August 30, 1878, six months after, he was adjudgecl a bankrupt in the district court for the western district of Pennsylvania, and one J. C. Hill duly appointed as his assignee. On the twenty-fust of November, .1878, the usual assignment was made 01 all his property by the register in bankruptcy to the assignee. On the tenth of January, 1881,the assignee filecl a petition in the b:mkmptcy court for leave to i:>HIl the bankrupt's interest in the property in question in this snit. 'j'he petition was granted and an order made thereon, and on February .i6, 1881, the lands included in the deed were sold at public auction hj the assignee, pursuant to such order, and the plaintiff became the purchaser for the sum of 5200 for the lands lying in Lincoln county $90 for land lying in Chippewa county. The sale was reported and confirmed by the court, and on the eighth of March, 1881, a deed was made by the assignee to the plaintiff as purchaser at the bankrnpt sale. The plaintiff was also a creditor of the bankrupt's estate in the sum of about $15,000. Peter Herdic was also adjudged a bankrupt by the same court on the same day that Charles E. Gibson was so adjudged. He had, however, failed previously, in November, 1877, for the snm of $2,000,000, before the <leed by Charles E. Gibson to his brother was made, and was hopelessly insolvent at that time. The rubber company, for whom Charles E. Gibson had also signed, had also failed, and was adjudged a bankrupt. The evidence shows that in 1877 Charles E. Gibson had consider· a?lp property, but at the time of the making of the conveyance by bm to Joseph H. Gibson of the land in question, in February, 1878, he was insolvent. Two suits were already pendin o aoainst hini in the States circuit. court for the western of vama,-one by Jacob Tome for $5,000, and one by the First National Rank of Williamsport for $2,500 and upwards, in judgment
BARTLBS v.
GIBSON.
295
was rendered against him soon afterwards, on the eleventh and twelfth of February, 1878. Other suits were soon commenced and judgments rendered; and when he went into bankruptcy his schedulEld property available to his creditors amounted to nearly nothing. The land in question in this suit was not scheduled by the bankrupt. This suit was begun on April 20, 1881, by Charles Bartles, Jr., claiming to be the owner of the lands by virtue of his purchase at the bankrupt sale against Joseph H. Gibson, the grantee in the conveyance from Charles E. Gibson, alleging the sale to be fraudulent and void as against the creditors of the bankrupt; and the object of the suit is to obtain a decree so adjudging such conveyance, and requiring Charles E. Gibson to convey the lands to the complainant. The issue is, for the most part, one of fact. Was the sale to Joseph H. Gibson made for the purpose of hindering, delaying, and defrauding the creditors of Ch,arles E. Gibson? and if so, was Joseph H. Gibson privy to the fraud? We find this issue in favor of the complainant, upon the evidence. 1fr. Justice HARLAN, in announcing the decision of the court from the bench, said that his practice at the bar, and such experience as he had had upon the bench, did not enable him to recall a case in which fraud of the character charged had been more clearly and distinctlyestablished than in this. In this judgment of the case I fully concur. The evidence shows the transaction to be marked with almost all the customary badges of fraud. So far as Charles E. Gibson himself is concerned, there is scarcely any attempt at denial of a. i'raudulent intent. The grantor was, at the time of the conveyance, hopelessly and irretrievably insolvent, and knew himself to be so. His debts amounted to two or three times the value of his property. He was pressed to pay and could not pay, and suits for large amounts were already pending against him. He had already got much of his property into bis wife's hands. He stated repeatedly that he had got bis affairs fixed, and that his creditors could not collect from him; said that his wife had propBrty, but that the creditors could not get anything from him. Under these circumstances, he takes his title papers, and Peter Herdic, for whom he had so largely signed, and who had already notoriously failed, amI goes from his home in western Pennsylvania to Boston to find his only brother, in order to dispose of his interest in these lands which it seems was about the last property he had then undisposed of. The other part owners of the land resided at and near Williamsport, but he made no effort to sell to them, or to any one else there. His brother, Joseph H. Gibson, was a man of small means, and a superintendent iu a piano manufacturing establishment in Boston. Had no money in bank, and kept no bank &ccount. Had never dealt in western lands, and had no knowledge or notion of the value or use of the lands his brother proposed to sell to him. He had never seen the land, and has not seen it since, and had never been
296
FEDERAL REPORTER.
in the lumher business. He took no means to ascertain their value or character, but says he had confidence his brother would not cheat him. Defendant says that Herdic made the ram ark that they were pine lands, bnt that he, defendant, knew nothing about pine timber lands in the west; that they milde the arrangement that his brother should sell him the lands for $.),OuO, and that he should raise'the money and pay him for the land; that he did so, and that his brotl:er went away with both the deed Ilnd tile money. The consideration clanse in the deed was left, blank, and afterwards filled up with $5,000; but the defendant is unable to explain why this was so. 'rhe defeuc1:tnt's testimony on this point is as follows: "I can explain that in no other way than this. I don't know that it was. I (lon't nnderstand it. I didn't know that it was. I have no recollection abont it. I remember now that I told Dimmick to prepare the deed, except the consideration clause, and I woulll give him that afterwards." This can hardly be said to be a very lucid or satisfactory explanation. Nor is the defendant's explanation of how or when he got the money any more satisfactory. He has no recollectiou of it, and cannot tell. He presumes he had money by him at the time, but don't know when it was raised. In answer to the question whether it was his habit to keep large sums of money by him, not having any bank account, he says it was not at that time. The evidence shows that he was worth $12,500, 'ren thousand of this was his iuterest in the business where he was employed, and the balance in mortgage securities. He was in no business except as superintendent in the piano eetablishment, on salary. A man in these circumstances would usually know and be able to tell how he came by $5,000 in cash at one time to pay for lands that he knew nothing about and had no use for. The defendant, who remembers very little, says it is his impression that he told his brother that if he would take care of the lands and pay the taxes and protect his interest, that he wonld purchase; and his brother, Charles E. Gibson, says that it was arranged before the sale that he was to have the care of the lands, because the defendant said that he had enough to do and did not want the care of them. Accordingly, a power of attorney was prepared and executed by the defendant to the bankrupt, some 11 months after the execution of the deed, authorizing him to have the entire control and care of the land, * .. .., to pay all taxes on it, to sell, exchange, or mortgage the same, and in his name to execute, acknowledge, and deliver all deeds and papers necessary to such sale, exehange, or mortgage. This power of attorm,y is in perfect keeping with tue testimony of the witnesses Troxell and Young, who went to Boston afterwards on pretense of trying to buy the land of defendant, that defendant, in conversation with them in Boston, told them that he was holding these lands for his brother, who lived at Williamsport, Pennsylvania; that his brother owned them; that his brother asked $18,000 01
BARTLES
v. GIBSON.
297
$20,000 for the land, and that he would write to them and let them know the price. These facts constitute very strong evidence, in connection with other circumstances in the case, to show that the transaction was in fact a secret trust, and so intended between the parties to it. It is shown that Dimmick, as well as Mary H. Gibson, the grantee's wife, was present when the transaction took place. But they are neither of them called as witnesses to the payment, which is of itself a very suspicious circumstance, and the proof of payment is allowed to stand upon the unsupporteel testimony of the parties to the fraud, if a fraud was committed, when, if defendant's statements are true, at least one disinterested witness might have been called to pLt the question of payment beyond doubt in the mind of the court. The testimony of the defendant on this que::ltion, as upon others, is exceedingly uncertain and unsatisfactory. And, upon the whole, we entertain great doubt whetller any consideration whatever, as a matter of fact, ever passed upon the sale. But if there was any money paid we are convinced beyond a doubt that the payment was a simulated one, and that there was in reality no consideration. The defendant testifies that he knew that his brother was in some was of a financial churactel·. Wllether difficulty, and that the he knew all or not, he knew enough to put him upon inquiry. The circumstances show that he must hare known of the fraudulent intent of his grantor. And if so, or if he had knowleelge of facts sufficient to excite the suspicions of a prudent man and put him on inquiry, he made himself a party to the franc!. Atwood v. Impson, 20 N. J. Eq. 156; lJaker v. lJliss, 3D N. Y. 70; Avery v. Johllnn, 27 Wis. 251; Kerr, Fraud, 236; David v. Birch'IHZ, 53 Wis. 4D2; [So C. 10 N. W. Rep. 557.] Many lumbermen and experts in the value of pine lands were examined as witnesses on the question of value. The evidence shows beyond question that the cush value of the lanel at. the time of the conveyance was, at the least, three times the consideration recited in the deed. The consideration named in the deed of the lands to CllUrles E. Gibson from Early, lIis grantor, and which he took with him to Roston and which defendant saw, as it was left with him during some part of their stay in Boston, was $14,(123. Some of the witnesses, well acquainted with the land and timber, and \vl1o are competent to judge, put the value at $%,OlJO. One witnt'ss put it at I believe tlIe weight of evidence shows it to have heen wurth at $16.000. Since the sale it bas hecome still more mluable. This is a strong circumstance in the case, tendmg to show fraud and a secret trust. And in this case there is no suflicient explanation of the illadequacy of consideration, even if the 55,OVO were paid. Kaine v. Wei.altY, 22 Pa. St. 179; 1 Swirt, Dig. 275. This disposes of the principal is:mes in the There remains to I.>e noticed some otter qut:stions discussed on the urgumeut. After
2V8
FEDERAL Iml'UlnEI:.
the suit was commenced and the issue made up, and the time for amending the answer had, of course, elapsed, the defendant asked leave of the court to file an amended answer, among other things set-ting up the statute of limitations as a barto the suit. The limitation in Wisconsin, and the usual limitation for such an action under the state laws, is six years. But it was sought to plead the shorter term of two years prescribed for such cases by the laws of congress. No reason whatever was given for not setting up this plea at the proper time, and as the limitation was a very'short one, the court held that it would not be in furtherance of justice to allow the plea at that stage of the cause, and denied the motion so far as the plea of the statute of limitations went, but allowed the other amendments asked for. On the trial the motion was i'enewed, to allow this amendment also. But the court, Mr. Justice HARLAN can· curring, sees lIO reason for disturbing the former decision of the district judge; especially as the testimony shows, beyond doubt, that there is not sufficient evidence in the case to support the plea. As the assignee in bankruptcy had no knowledge of the fraud until about five or six months before the sale to plaintiff and the commencement of the suit, section 5057 of the Revised Statutes of the United States provides that no suit, either at law or in equity, shall be maintained in any court, between an assignee in bankruptcy and a person claiming an adverse interest, touching any property or rights of property transferable to, or vested in, such assignee, unless brought within two years from the time when the cause of action accrued for or against such assignee, and this provision shall not in any case revive a right barred at the time when an assignee is appointed. It is now settled that this section is in effect a statute of limitations, and I think there can be no doubt about its applicability as such to this case, if properly pleaded. Like any other statute of limitations, however, it must be taken advantage of either by demurrer or answer, or it will be waived. Bailey v. Glover, 21 Wall. 34:6; Upton v. J.IcLaughlin, 105 U. S. 640; Sullivan v. Railroad Co. !)± U. S. 807, 811; Prillce v. Heylill, 1 Atk. 494; De.y v. Dunham, 2 Johns. Gh. HH; Hickman v. Stout, 2 Leigh, 6; Hepbum's Case, J Bland, Gh. 110; Chambers v. Chalmers, 4 Gill & J. 420, 438; Parker v. [{aile, 4 Wis. 1; Sears v. Shafer, 6 N. Y. 268; Gulick v. Loder, 13 N. J. Law, (1 Green,) OS. Conceding it to be in the discretion of tbe coud to allow the plea to be made after an answer to tbe merits in an equity case has been put in, still, considering the nature of the facts charged in the bill, and that no excuse was given for not making the plea at the proper time, and that the facts must have been within the knowledge of the party when he made his answer, and as the limitation prescribed by the statute is a short one, we think the discretion of the court was properly exercised in refusing to .eceive the plea at that stage of the cause.
v.
299
It was ruled by the supreme court of the United States in Bailey v. Glover, 21 Wall. 349, as being in accordance with the weight of authority, that where, in such a case as this, the party injured by the fraud remains in ignorance of it, without any fault or want of negligence or care on his part, the bar of the statute does not begin to run until the fraud is discovered, tl:ough there are no special circumstances or efforts on the part of the party committing the fraud to conceal it from the knowledge of the other party. And the same doctrine' is again affirmed in GU!ord v. Helms, 98 U. S. 248, and Upton v.McLaughlin, 105 U. S. 640, supra. The ass1gnment in bankruptcy was made on November 21, 1878, and of course the cause of action in favor of the assignee would accrue on that day. This suit was comIX!enced by the filing of complainant's bill on April 20, 1881, two years and five months afterwards. But the bill SIIOWS npon its hce that the fraud charged was not discovered by the assignee or the complainant until within two years previous to the commencement of the suit, and this allegation is supported by the proofs. The property itself was not scheduled by the bankrupt, and it is shown that the assignee had no knowledge of his former ownership of the land, or of the fraud alleged, until De- . cember 1, 1881, less than five months before the commencement of the suit. So that it is clear the action was not barred, as assignee in bankruptcy, at the time of the complainant's purchase, on March 8, 1881; and if so, whatever right the assignee had to maintain the suit, was, by the sale and conveyance of that date, transferred to the complainant, without regard to the question of the complainant's knowledge, or want of knowledge, of the fraud. He could not bring the action until he his conveyance from the assignee; and within forty days from the time he acquired the right to fiue, this suit was brought, and within six months after the time the assignee first heard of the fraud. Upon the hearing of the case no sufficient excuse was rendered for not making this defense at the proper time, or for not tendering such excuse before the district judge on the former application; and at this StaC9 of the action, especially in the absence of anything in the evidence commending the defense to the favorable consideration of tllH COUl't, the plea of the statute of limitations will not be permitted to be filed. It was also claimed by the defendant that, independent of the statute of limitations, the assignee in bankruptcy and the ,plaintiff had been guilty of laches in not prosecuting ilia case sooner; but, for reaODS before giYen, we think there is no ground for this claim. . Other amendments were also asked for on the hearing' by the fendant, and offers of documentary peoof made to correspond .thereto. l"twas 'proposed to set up the dIscharge of tbebankrupt g,oonted by. the district court for the westerndi$tnct.of Pen.nsylvania, against the objection of the complainant, founded ,upon tt16 saine alleged fraud,
300
REPORTER.
as a defense tlLl fraud charged in the bill of complaint, and to introduce the record of proceedings in that court as evidenceFi.rst, as a bar; and, second, if not as a complete bar, at the least, as evidence upon the main issue in this case that no fraud was, in fact, committed. But we do not think this plea would be a good one if offered at the proper time, or the evidence ought to be admitted to sustain the issue on defendant's part. It is very probable, from the showing made, that the bankruptcy -court did not regard the slJecitications based upon these frauds as suf:ficient ground for denyIng a discharge, for the reason that the alleged frauds were committed prior to the six months immediately preceding the adjudication in bankruptcy. However that may be, it is quite clear that the decision and order rna 1e up on that issue between Cllarles Bartles, as a creditor of the bankrupt, Charles E. GiLson, and Charles E. GILson, cannot prejudge the present issue between Bartles and Joseph H. Gibson. Suppose the bankrupt court, instead of granting the discharge, had sustaiued the objections made by Charles Bartles and refused to discharge the bankrupt. Coulll it be claimed tlJat snch an adjudication would have Leen evidence in this cause against Joseph H. Gibson? We think not. And if so, it seems equally clear that it canlIot be used as ev dence in his behalf. Estoppels of this kind should Le mutual. That was an issue between Charles E. Gibson, the I a'lkI'u Vt, and Charles Bartles, as his creditor. To that issue the assignee in bankruptcy was not It party. Xeither was Joseph H. Gibson. It was no concern of Mr. Hill, the assignee in bankruptcy, whether Charles E. Gihson should be discharged or not. The present issue is between different rarties. It is neither between the same parties nor their privies. This is an issue IJetween Charles Bartles, as a purchaser of property at the bankruptcy sale frum the assignee in bankruptcy, and the defendant., Joseph H. Gibson. And not only are the parties different, but, in our j udgmellt, the issue Itself is a different issue; and it i.s ('oul/trul whether, if all that is alleged in the bill of cum plaint oe true, it should have prevented a disch,trge in bankruptcy. And so, prolln bly, the bankru ptcy court viewed it. There is out Olle question more that is worthy of notice. It is claimed that there is an inadequacy of consideration in the sale to Bartles. But this objection does not lie in the mouth of the defendant to make. Bartlell was a creditor of Charles E. Gibson to the IlmOllnt of $15,000. The estate of Charles E. Gibson had furnished no funds to enable the assignee to litigate this claim in behalf of the creditors. There was no other creditur who wished to assume the chance of such litigatioll at a greater price than the complainant paid. The assignee had a right to sell the claim at public anction for the best price it would bring; and the pnrchu:5er, whuever he might be, as against
LJOMIS V. DA.VENPORT & ST. P. R. CO.
B01
the defendant, whatever the rights ot ehe other creditors might be, would succeed to all the rights and take the title of the assignee. There is no suspicion that the sale wa3 not a fair one. The purchaser took his own chances, and if the claim brought but a small price it was because the title to the property had been clouded by the wrongful act of Charles E. Gibson, in which the defendant voluntarily participated, and to which he made himself a party. Sterens v. Hauser, 39 N. Y. 302; Rrtnkin v. lIctrper, 23 1\10.586; Den v. Lippencotl, G N. J. Law, 473; Lynn v. Le GierlJe,48 Tex. 140; McDoJll1ld v. Johnson, 48 Iowa, 77. Decree for complainant according to prayer of bill, with costs. HARLAN, J., who heard the case with the district judge, concurring.
Looms and others v. D.\VEN:'ORT & ST. P. R. Co. and others. PRICE
SAME.
{Circuit ('ourt, D. IOloa. 1. VENDOR'S LTEN-EQUTTARLE OWNER.
January, 1882.)
Although general rille is that a vendor's lien on estate for tIle purchase mo:\ey is given to the per.-on wh ) owns the title and conveys, it is .ot iudispensahle that the legal title should have vested in the party who claims the lien, nor Ih:lt the dped or conveyance should h·we been actually executed hy him. if he is the owner of tIw land in "quitl', ami controls the leg-al title, and causes the lonvcyance to be made by the h ,I IeI' of the legal title to a third party, and is entitled to the purellase illJUey. he is entitled to a ven lor's lien therefor. SAME-COLI,ATF:RAL SRCURTTy-WATVER.
A vendor's l.en is dcfealeJ by any act upon the part of the vendor m,\.,ifesting an intentIOn not to rely upun tIw land for as, for ex:unp e, ing a d,st,nct, s,"p Ir,lte secllnty, as a mortgage or bond, or note, with security; hut the mere acceptan,·e of the vendee's dr,lft, not as security, hilt as payment of the purchase money, when sllch draft is not paid by the drawee, will not he considered a wai.er of the lil'n.
SAllF:-lIloRTGAGE ON
PROPRRTY OF VE:<iDEE.
'Vhere land is conveyed to a railroad company, which Ius givcn a covering aftet'-acquirell property. such m .rtgage docs not become a ti",t 'ien on the bnd, but is to the v'o'ndor's lien for un'>aid purchase an:!, as to snch land, the mortgagee is not a purchaser for value. ·
4.
SAllE-LIS PE'OD"Ns-BoNA FIDE PUBCIIASER.
'Vhere one of the acf'n tants, in a to a railroa.l mortgage in a clrcu.t t;ourt of the Unittod Hlate" uy leave of the conrt, p,·oc.·e,Lcl in the state court to e,tabllsh d vendor's lien on the road, a pnrcha,er of the prope!'t)' at t:l; foreclo,nrc salcl is chargeable with notice of the prvc. in tile state and Ullited ::).ules cuurts, and lie is put upon. inquiry as to the vendor's lkn.
In Equity. MCCRARY, J. Tile original nction was brought to foreclose a m"lrtgage upon the property atHi franchises of the Davenport & St. l'aul