In re King
Opinion of the Court
In these cases in bankruptcy, under the bankrupt law of 1841, applications have been made to set aside and declare null and void certain deeds made or claimed to have been made by Mr. Waddell, the official assignee, under orders of the court entered in the years 1858, 1859, and 1862, authorizing him to sell at private sale certain alleged interests vested in him as such assignee in certain real estate in the city of Chicago.
The ground on which the vacating of the deeds is sought by the petitioners, the executors of one Ogden, is that long prior to the date thereof their testator was in the actual possession of the real estate in question, claiming title thereto as assignee or grantee of the interest, whatever it was, that had belonged to the bankrupts, and that the deeds now in question were not deeds for any valuable consideration, but that they were in fact gifts, so far as the estates of the bankrupts are concerned, which the court neither authorized nor had any power to authorize; that if not mere gifts the deeds were void, because the interest of the bankrupts had been previously sold and disposed of under prior orders of the court, and that the deeds were procured by false and fraudulent representations of matters of fact, whereby the court was deceived and misled into making the orders under which the deeds purport to have been given, and by which alone the giving of them can bo justified.
The respondent, Chapman, who claims to be the bona fide purchaser for value of the titles made under these deeds, and who alone appears to object to the prayer of the petition, has commenced a suit based in whole or in part on these deeds, or some of them, against said Ogden, which is still pending against the petitioners as his executors, in which suit said Chapman claims an accounting for the rents and profits of that interest in the said lands formerly of the bankrupts, and alleged to be held by said Ogden as trustee for said Chapman, said Chapman’s interest as cestui que trust being derived through said assignee’s deeds.
1. I think it is clear that the petitioners, though not parties to the bankruptcy proceedings, have such an interest in the
2. Nor do I find anything in the act repealing the bankrupt law of 1841 which precludes the court from entertaining this petition. The act contains the proviso that it “shall not affect any case or proceeding commenced before the passage of this act, or any pains, penalties, or forfeitures incurred under the said act; but every such proceeding may be continued to its final consummation in like manner as if this act had not been passed.” It is urged that after the discharge of the bankrupt, and the final disposition and distribution of his estate, the proceeding has reached its final consummation, and the power of the court to pass any order in the case is taken away by this proviso. I think, however, that this proviso clearly preserves in full force all the power and authority which, under the bankrupt law of 1841, this court had to act in any case commenced before the passage of the repealing act. Full force is to he given to all the language used, and the first clause distinctly provides that the repeal shall not affect any pending case; and the last clause, giving express authority to continue to final consummation all such cases, though perhaps unnecessary, was not designed to he restrictive of the prior clause. Nor, in a large and proper sense, is a case carried to its final consummation so long as there remains any order, decree, or action for the court, in the proper and usual exercise of its jurisdiction in like cases, to enter or to take, or any redress or relief to be given to any
3. It is claimed on behalf of the respondent, Chapman, that, although the legal estate in the lands in question became vested in Mr. Ogden, and although, from a period long prior to these deeds, he claimed to hold to his own use the beneficial or equitable interest which had formerly belonged to the bankrupts, that, as to the interest of the bankrupt Hyde, he, Chapman, is in fact the assignee of that interest by another and independent title, anterior and superior to that under which Ogden claimed to have obtained the same interest as the assignee of Hyde, and that tho circumstances under which Ogden acquired the legal title to Hydo’s share were such as in law and equity made him a trustee for the assignee of this beneficial interest of Hyde. Hence it is argued that, as Ogden was a trustee for Hyde’s assignee, and as Chapman is Hyde’s assignee, Ogden and his representatives cannot raise this question with Chapman; that, Ogden being Chapman’s trustee, he and his representatives cannot attack his title;, that they are bound, in all things, to protect and defend the title and interest of Chapman in tho lands to which the trust relates. But the argument is fallacious, and the point wholly irrelevant to the present inquiry. Whatever title Chapman may have to Hyde’s interest, acquired before and independently of these deeds, cannot be affected or impaired by the vacating of the deeds; and, as to any such title, Ogden’s attack on these deeds is in no sense a violation of any relation or duty of trust which may exist in reference to such earlier title. In respect to the tiilo claimed by Chapman to have been created in him under these deeds themselves, no relation of trustee and cestui que trust can possibly arise between the parties if the deeds are void, or were acquired by a fraud, to which, as alleged in the petition, Chapman was a party. Ho party can claim the benefits and protection due to a cestui que trust, who has acquired the apparent interest of a cestui que trust by means of a fraud practiced upon or against the rights of the alleged trustee. Such a claim would be too absurd for discussion. I have, therefore, treated as
The deeds in question made by Waddell, as assignee in bankruptcy of Henry King, are five in number, as follows: (1) A deed to Gordon L. Ford, dated July 15, 1845, but acknowledged and admitted to have been executed October 26, 1858; (2) a deed to Gordon L. Ford, of the same date, and executed on the same day as the preceding; (3) a deed to Isaac L. Hunt, dated December 3, 1858; (4) a deed to Isaac L. Hunt, dated January 19, 1859; (5) a deed to Chapman, the respondent, without date, but acknowledged July 11, 1862. The deeds in question made by Waddell, as assignee in bankruptcy of Simeon Hyde, are three in number, as follows: (1) A deed to Gordon L. Ford, dated October 26, 1858; (2) a deed to Isaac L. Hunt, dated January 19, 1859; (3) a deed to Chapman, the respondent, dated July 10, 1862.
It is conceded that the two deeds to Chapman were taken for the purpose of correcting a supposed error in the previous deeds, which error, it is now admitted, did not exist, and if a case is made out against Chapman for vacating the other deeds, these must also be vacated on the same grounds. It is unnecessary, therefore, to state the case, except with reference to the six earlier deeds. Long before the making of these deeds, certain proceedings were had in this court in relation to the interest of the bankrupts supposed to be affected by the deeds. Henry King’s schedule of assets thus refers to the matter of this property: “My joint interest in Hunter purchase of lots in Chicago in Co. S. Hyde, managed by Charles
On the eleventh of June, 1845, Waddell, the assignee, made a report to the court that certain property, including the item above referred to, was “of uncertain value, and ought to he disposed of at public salo, without incurring further delay or expense,” and, in conformity with the rules of the court, he proceeded to sell the same at public auction. The rules required him to advertise the sale, and the form of the advertisement incited that, “by virtue of sundry decrees,” etc., “I will sell at, etc., all the property and rights of property of every name and nature which became vested in the official or general assignee by the decrees aforesaid, the following assets hereinafter noted, which are more particularly set forth in the papers on file in the office of the said court, as by reference thereto, will more fully appear” — “purchaser paying expenses of the formal deed of sale, if one be required, in addition to the amount of purchase.” * * * “In the matter of Henry King” — -“His interest in five lots of land in the town of Joliet, 111.; also in sundry lots in Chicago, 111., purchased with Simeon Hyde, and assigned to Henry Eldridge, Boston,” etc.
4. There can be no possible question that the property referred to in the advertisement as “his interest in sundry lots in Chicago, Illinois, purchased with Simeon Hyde, ” etc., is the same property and interest intended to be described in the official report of the assignee, although in the report it is
5. There having been, then, a valid sale, under the order of the court, of this asset of the bankrupt, and that sale having boon executed by the payment of the price, the court had no power to authorize the sale of the property a second time. Its power was clearly limited to one actual sale, by which this property was turned into money. So' far as that asset was concerned, the court had exhausted its powers, except to do what was proper to carry it into effect and vest the title in the purchaser. It is immaterial that no deed was ever given, even if the interest was real, and such that the legal title would pass only by deed. It is true that a naked, barren legal title may he conceived to remain vested in the assignee, but not for the use or benefit of the creditors of the bankrupt. They have, through the assignee, already received the full value of the property in money, to be distributed among them in dividends on their debts. They can claim no more under the bankrupt law. To hold that the court could order it to he sold again, and turned into money, because no deed passed, would be to hold that it has power to take property in which the creditors have no interest, and distribute it amsng them. No bankrupt law ever gave such a power to a court in bankruptcy. There is no analogy he-
Any second sale, therefore, of the interest of the bankrupt King, not in confirmation of the first sale, must be treated as inadvertently made, and an exercise of power not conferred upon the court, and upon the application of any party in interest will be set aside, revoked, and declared null and void on that ground.
The suggestion that the want of a deed gave the court authority to make a second sale is especially without force in this case, as the very form of the advertisement invited the purchaser to dispense with a deed, if he did not wish to incur the expense.
6. After the sale to Burnham, and Burnham’s sale to Butler, nothing further was done, so far as appears, in reference to the Henry King interest, till October, 1858, when Gordon L. Ford applied for and obtained the first two deeds in question, which are dated back to July 15, 1845, the date of sale to Burnham. No order of the court appears to have been obtained for the making of these deeds. The only explanation of them given by Chapman is that contained in the affidavit of Waddell, made a part of Chapman’s answer, that they were given to Ford at the request, in waiting, of Burnham, which
It is obvious that these two deeds to Hunt were not made in confirmation of the sale to Burnham, nor subject to that sale, as the court directed, but in hostility thereto, and in violation of the order of the court, were made subject only to the two deeds to Ford, and they must, for these reasons, be set aside.
It is objected to them also that they were gifts, being for a merely nominal consideration. I think the evidence establishes this fact. The recital of a dollar paid is in entire conformity with the applications under which they were made, which were for a conveyance upon a nominal consideration of property having no pecuniary value to the estate. The only money proved to have been paid was the fee or bribe paid to the assignee for a pretended examination which he is shown not to have made, and the service of counsel who does not appear to have been employed.. There is no question involved of a bona fide purchase by Chapman under these deeds, for their invalidity, their variance from the order of the court, appeal's on their face and on the order referred to therein.
Aside from this consideration, I am satisfied upon the proofs that Chapman himself procured them to bo made to Hunt; and, without going at large into the evidence, it is ■enough to say, as to these deeds of the King interest to Hunt,
Simeon Hyde purchased his interest in the property in question in 1835 of one Porter, and he held a certificate executed by Charles Butler, dated October 10, 1835, to the effect that he was entitled to one-tenth of the property “to be accounted for in money (and not in land) as a personal interest when the said property shall be sold and the avails thereof realized.” On the tenth of December, 1836, Simeon Hyde executed an assignment of this certificate, and of all his right, title, and interest growing out of it, to James N. Hyde. This assignment was made, to secure James N. Hyde against indorsements made for Simeon Hyde. In Simeon Hyde’s bankruptcy schedule, dated August 19, 1841, the property is described as “one-tenth of an interest with Charles Butler and others in what is termed the Hunter purchase, consisting of a large number of lots in Wolcott’s addition, north side of the river, in Chicago; William B. Ogden, of Chicago, agent.” Meanwhile, James N. Hyde had made an assignment to trustees for the benefit of creditors, and on the eighth of May, 1844, the assignees of James N. Hyde assigned, by an instrument under seal, the said certificate, and all the interest of James N. Hyde therein, and all the estate, right, claim, and interest in the premises referred to therein to William B. Ogden for a valuable consideration. Ogden also purchased the shares of the other owners and has ever since been in possession of the lands, claiming to be their sole owner. On the twenty-seventh of November, 1843, Waddell, the general
I do not see, however, any principle upon which this hook of account can he excepted out of the general rule that a writing, if in existence, must he itself produced. But rejecting this evidence I think there is proof enough that the price was paid by Hallahan. The sale was for cash, and there were no subsequent proceedings on the part of the assignee indicating that the sale was defeated by the default of the purchaser; and the presumption is that the assignee did his duty and collected the purchase money of the person to whom the sale was made. There is also some evidence, from an employe in the office of tho assignee, tending to show that in all cases the price was paid. This case does not differ, therefore, in this respect from that of the sale of the interest of the bankrupt King to Burnham. The sale exhausted the
Thereupon the judge indorsed an order, pursuant to the report, authorizing the assignee to dispose of the property at private sale. Under this order the assignee made a deed, dated and acknowledged October 26, 1858, conveying “all that tract of land known as the Hunter purchase of lots in Chicago, as referred to in any manner in an instrument of writing made with one Edward Eldridge,” etc. It is quite evident that the statement contained in the application and report that Ford had purchased the property of the assignee
The only remaining deed to be examined is that from the assignee to Isaac L. Hunt, of the Hyde interest, dated January 19, 1859. The application of Hunt to the assignee is dated January 14, 1859. The official report of the assignee, and the order, are dated January 18,1859. All these papers are in the same form as the others, above referred to, except that this application states no reason for asking the conveyance other than the wish of the applicant to procure a conveyance. The report states that a conveyance is applied for “subject to any former conveyances which may have been made by the assignee of the samo, and as may appear of record.” The deed is a conveyance, “subject to any former conveyances by the said assignee in said matter, and on record in said county.” The prior deed, in fact recorded, was the deed to Ford. The deed to Hunt was, therefore, made subject only to that conveyance, and not to the conveyance previously made in 1845 to Hallaban. The proof is that this deed to Hunt was a gift, and not a sale, and for this reason, and because of the prior sale to Hallahan, it must be set asido as inadvertently and improperly given, as well as because it was, like all the earlier deeds, procured by an improper, illegal, and corrupt dealing with the official assignee.
As to all ilie deeds, it is evident from the proofs that the assignee was carrying on a trade in pretended or fictitious
The purchaser, Hunt, in this case, was a mere agent of the respondent, Chapman. And Chapman’s motive in buying up these possible interests was to base upon them claims, to be prosecuted by litigation against parties in possession of the property. And in March, 1862, he commenced an action against Mr. Ogden, based on these deeds, as above stated.
The use that has thus been made of this court to promote litigation is highly improper and scandalous. And as the deeds, made by the assignee were clearly such as the court had no right to authorize, there is no good reason why the petitioners should be remitted to their defence in that action for the purpose of showing there the invalidity of the deeds, or why the respondent should retain the unjust advantage which the possession of the deeds, given under the apparent authority of this court, confers upon him.
It is, however, insisted that it is now too late to have the deeds set aside; that application therefor should have been made at once on the discovery by Mr. Ogden of the claim made under them. When a transaction inter partes is sought to be annulled for fraud great diligence is often necessary, and delay, with knowledge of one’s rights, will be deemed acquiescence, especially where the delay has occasioned a change in the position of the parties relatively to the subject of the contract. The doctrine of laches thus applied is very familiar. The present, however, is not a
Without holding that the doctrine of laches has no application to such a case, it is clear that that principle can have far less’ force in such case than in a proceeding between vendor and vendee, where the vendee is put in possession under the deed afterwards assailed. In this case the misrepresentations by which the court was induced to make the orders do not appear to have been discovered by Mr. Ogden in his lifetime, nor by his executors, up to the time when they put in their answer in Chapman’s suit, in September, 1878. The fact is adverted to by the respondent, Chapman, that these misrepresentations are not set out in the petitioners’ answer in that suit. It is hardly conceivable that if the facts were then known to the executors they should not have been set up in defence. As regards the other grounds of invalidity— the want of power in the court to make a second sale of the same property, or a gift — they are grounds not for declaring voidable and avoiding the deeds, but for declaring them to have been absolutely void and of no effect from the beginning, so that no rights whalevov can have been acquired thereby through the acts of the vendee or the laches of any other party. The petitioners’ testator was undoubtedly negligent in inquiring into the history and validity of these conveyances. Under advice of counsel he seems to have relied on his demurrer to the complaint as a sufficient defence till that was finally disposed of in December, 1875; hut there has been no loss of evidence by the death of any party who could throw light on the transaction. Waddell, Ford, and Hunt are all living, and have not been called as witnesses. There seems to be no reason to doubt that the respondent could have proved, if the fact were so, that a consideration was paid to the bankrupt estates for these, conveyances. He has not attempted to do so. As to the deeds to Hunt, he admits in his answer that he procured them to he made, and
Prom beginning to end, these transactions show a common purpose to obtain a colorable title from the assignee, which should be superior to or supersede the title made under the auction sale. In every instance where in the deed the rights under a former sale are reserved or saved, the deed is more favorable to the grantee than the order based on the assignee’s report. This is true of the last deed to Hunt, as well as of the earlier deeds. That deed saves the rights under an earlier recorded deed only, while the report and order will at least bear the construction, and were probably intended to convey to the court the impression, that what was apjfiied for was a deed subject to a prior sale, of -which a deed may have been recorded, thus saving the rights under that sale, whether the deed was recorded or not, which is the only condition on which the court could or would, except by inadvertence, have authorized a second sale. This feature of the transactions, common to them all, is itself sufficient to stamp them as designedly fraudulent, and the respondent, Chapman, who procured the deeds to Hunt, must be held upon the proofs to have been the principal in this fraud. So far as appears he was the only party concerned in the transaction who had any motive or interest to obtain the deeds. He is shown by the proofs to have been actively engaged at and before this
Reference
- Full Case Name
- In the Matter of King, Bankrupt. In the Matter of Hyde, Bankrupt
- Status
- Published