without the State is more suitable to be used in the work of construction of a sewer than is stone prepared for use within the State; it might be urged, with equal force, that beef, pork or veal is more palatable or healthful than mutton. I may show poor judgment in my selection of mutton, and in such selection discriminating against a food that is more palatable and healthful, but this consideration has no bearing on the legal aspects of the question. In the light of the above observations, let us briefly examine some of the arguments relied on by the majority of the court, as stated in the opinion of O'Brien, J., in People ex rel. Rodgers v. Coler. Thus it was said (p. 15): "The contractor is a private individual engaged in private business. When he enters into a fair and honest contract for some municipal improvement, that contract is property entitled to the same protection as any other property. It is not competent for the legislature to deprive him of the benefit or this contract by imposing burdensome conditions with respect to the means of performance, or to regulate the wages which he shall pay to his workmen, or to withhold the contract price when such conditions are not complied with, in the judgment of the city. When he is not left free to select his own workmen upon such terms as he and they can fairly agree upon, he is deprived of that liberty of action and right to accumulate property embraced within the guaranties of the Constitution, since his right to the free use of all his faculties in the pursuit of an honest vocation is so far abridged." less competent than their neighbors, must be de- "The effect of the contract must be that wholesale dealers in beef, pork or veal, exclusively, must be deprived of opportunity to sell beef, pork or veal to the butcher making the contract, and so the tendency of such contract is to check individual exertion and to suppress industrial freedom." The same criticism is applicable to the solicitude expressed for citizens of other States and resident aliens. The solicitude expressed for the local property owners as "the parties that in the end must bear the expense of the improvement * * * enlarged beyond actual and reasonable cost, under ordinary business conditions” (p. 15), seems uncalled for, no such owner having appeared as an objector to the contract. Nor, looking at the matter from the standpoint of the city itself, does the objection seem more available. It is ordinarily no ground for granting relief against a contract of sale or for services, that the price agreed upon is wasteful and extravagant. I am not unmindful that the contract provisions under consideration in these decisions were framed in accordance with express statutory requirements, and that it was laboriously contended by O'Brien, J., representing the majority of the court, that it was beyond the legislative power to constrain the city to this form of a contract. On this point I will only say that it seems to me to be conclusively shown in the dissenting opinion of Chief Judge Parker, that this limited view of the power of the legislature over a municipal corporation, is opposed to the law as generally recognized, and as it had been recognized in this State prior to the decisions in question. FREDERICK H. COOKE. 40 Wall street, New York city. Reverting to our illustration of the butcher's contract to supply mutton exclusively, I submit that the following reasoning is as persuasive as the above: "The butcher is a private individual engaged in a private business. When he enters into a fair and honest contract to supply meat, that contract is property entitled to the same protection as any other property. It is not competent for the purchaser to deprive him of the benefit of this contract by imposing burdensome conditions, with respect to the means of performance, or prescribe the kind of meat which he shall furnish, or withhold the contract price when such conditions are not complied with, in the judg- THE RIGHTS OF TRUSTEES TO INDEMNITY. ment of the purchaser. When he is not left free to select the kind of meat that he shall furnish under the contract, he is deprived of that liberty of action and right to accumulate property, embraced within the guaranties of the Constitution, since his right to the free use of all his faculties in the pursuit of an honest vocation is so far abridged." Where one person at the request of another undertakes a trust for that other's benefit, he has generally been held entitled to be indemnified by the cestui que trust personally, where the trust fund was insufficient, for any expenses connected with the execution of the trust (Hemming v. Maddock, L. R., 7 Ch. 395: Grissell v. Brestowe, L. R., 4 C. P. 36). The question whether the mere trust relation imposes the same liability on the beneficial owner independently of contract was for the first time presented in an important case lately decided by the Privy Council (Hardoon v. Belilios, 83 L. T. Rep. 573). A firm acquired stock in a bank, and had it registered in the name of the plaintiff, one The effect of the law must be that all those who of its clerks, he executing and delivering to the firm are too young or too old, or for any other reason a blank transfer. This transfer came into the hands With reference to the solicitude expressed by the majority of the court for workmen incompetent to earn the rate of wages specified by the contract, and, therefore, as argued, discriminated against, I submit that it would be equally logical, to revert to our illustration, to express solicitude for the wholesale dealers in beef, pork and veal. The court said (p. 17): of one Coxon, who pledged it to the defendants, for on its principle the liquidator could enforce any and on the settlement of accounts between Coxon legal liability of the trustee by an equitable execuand the defendants the latter became the beneficial tion against the cestui que trust. It would be interowners of the stock. Later the plaintiff applied to esting to see whether the court in an analogous case the defendants to accept a transfer of the stock on in which the trust res consisted of land would the bank's books, but this the defendants refused. similarly throw the burden on the beneficial owner. On the bank subsequently going into liquidation To do so would be in violation of the principles the plaintiff was placed on the list of contributories, governing trusts of land, and would compel the and sued for calls so paid by him. The court held court to disregard a decision by Lord Cottenham the defendant liable on the express ground that a holding that an equitable mortgagee of a lease canperson sui juris beneficially entitled to shares which not be forced to take an assignment of the lease, or he cannot disclaim, is bound, in a court of equity, be held liable on its covenants (Moore v. Greg, 2 to indemnify the trustee against calls. Phillips, 717). Yet it would be difficult for the court to find a satisfactory distinction. The case, in short, seems but another illustration of the tendency at times manifested by even the most conservative tribunals judicium dare and not judicium dicere.- Harvard Law Review. We have seen that by the explicit language of the statute (13 Eliz. c. 5), the fraudulent conveyance as to creditors, but as to them only, is “utterly frustrate, void and of none effect." We have also seen that this statute was only declaratory of the already existing common law, adding nothing to the law except clearness of statement. On the facts of the principal case the result reached may be desirable, but it is difficult to feel the certainty of the court as to its obvious correctness. Lord Lindley professed to find the rule imposing liability under the circumstances of the principal case settled by a long line of decisions extending from Balsh v. Hyham (2 P. Wms. 453), to Hughes-Hallet v. Indian Gold Mines Co. (22 Ch. D. CONVEYANCES IN FRAUD OF CREDITORS 561). In all these cases, however, the parties either stood in the relation of vendor and purchaser, or there was a contract between them, or a request by the defendant for the plaintiff to become trustee. These facts Lord Lindley stated were immaterial, but it was on these facts that the counsel for the plaintiff in all the cases relied, and the strongest expressions in favor of the principal case consist of loose statements broader than the matter there un- In 1856, in Blain v. Stewart (2 Iowa, 378), it was der consideration required. Moreover, the great declared that under the act of January 16, 1840, authority of Lord Blackburn points squarely the providing that the term "real estate must be other way (Fraser v. Murdoch, 6 App. Cas. 855). construed to "include lands, tenements and hereditHitherto, as far as actual decisions went, the trust aments, and all rights thereto, and interest relation could safely be regarded as unilateral, the therein," a judgment created a lien upon equitable trustee alone being under any obligation; all his as well as legal estates. That rule has ever since rights against the cestui que trust arising separately been the law of the State. It logically followed, out of quasi-contract for a benefit conferred, or and was so decided in Harrison v. Kramer (3 Iowa, because of a contract of indemnity readily implied 543, 561 [1856]), that an execution sale passed the from a request to act as trustee. It is difficult to equitable title, and this doctrine has never since contend that a person merely by becoming a bene-been judicially questioned. “According to these proficial owner thereby subjects himself to certain visions, the equitable interest of a defendant in land duties to the legal owner. Being a holder of the or real estate is as much subject to execution and beneficial interest does not always necessitate in- sale as his legal interest or estate (Id.). curring the liabilities of legal ownership, for one can take an under lease for one day less than the original term of a lease, and not be liable on its covenants, though practically the entire beneficial interest has passed. Further there is no strong reason of convenience against the view that the trust relation is unilateral, because a person becoming trustee must be taken to know that liability is often consequential on legal ownership, and accordingly he should safeguard himself by some provision for indemnity. It would scarcely be contended that the legal owner in this case could by a bill in equity have forced the legal title on the defendant. The latter could well say that he did not buy that, and does not want to have anything to do with it. Yet that is practically the result of the principal case. By it an equitable owner is placed effectively in the same situation as a legal owner, It was, however, declared: "The creditor has his election, in the first instance, to levy upon and sell either. He does not, in fact, need the aid of a court of equity to enable him to subject the equitable estate to his judgment. If he elects to proceed with his execution and sell the property, he purchases at his own risk whatever interest the defendant may have in the property. When he seeks to draw to the equitable interest so purchased, the outstanding legal title, if he shall fail, he must ordinarily suffer the consequences." The case that elicited these remarks was a fraudulent conveyance from father to son, in which, judgment having been secured against the debtor, the land had been sold under execution and a bill then filed to quiet the title so acquired. It will be observed that despite the declaration of the statute that, save as to creditors, the fraudulent deed is dies, the creditor, in assailing fraudulent transfers of real estate, is accorded four several and distinct ones, and this, too often ignored, should always be carried in mind. They are: First. Sale of the property under execution, possession being secured by action of ejectment. Second. Having purchased at the execution sale, the buyer may, if in possession or in those jurisdictions in which title may be quieted, though the plaintiff be not in possession, file his bill in equity to quiet his title and remove the cloud upon it created by the fraudulent conveyance. The mere statement shows that in this proceeding equity does not good, this court assumes that, after the conveyance, the grantor remains the equitable owner of the premises, the grantee holding the legal title only. An early Iowa statute, yet in force, declared that all conveyances which, either in whole or in part, shall have been made for or on account of intoxicating liquors, sold in violation of the statute, “shall be utterly null and void against all persons in all cases, and no rights of any kind shall be acquired thereby." In Lindt v. Uihlein (79 N. W. Rep. 73; 109 Iowa, 591), it was held that this language so clearly implied nullity as to forbid discussion. Yet, for nearly fifty years, that court has held, despite a statute declaring that the deed which, as to credi-undertake to create title. That has already been tors, shall be "utterly frustrate, void and of none effect," but perfectly good as to the rest of the world, leaves in the grantor the equitable ownership of the property. As we shall see, this view is sustained neither by reason nor authority. The court egregiously blundered. acquired in the proceedings at law. Third. The property having been seized under execution, bill may be filed, invoking the aid of equity to set aside the fraudulent conveyance in order that there may be an unobstructed execution sale. 1 In this case, the jurisdiction of equity is purely "It is not filed ancillary to that of the law court. to reach property incapable of seizure on execution, and, therefore, based on the theory that the legal remedy has been exhausted. Very far from it. The principle on which it proceeds is that a legal remedy is in fact progressing, and which, being fraudulently obstructed, the aid of the court is needed to remove that obstruction. The claim is made that the deed from the judgment-debtor to his son is fraudulent as against the creditor, and that the farm is therefore subject to levy, and the deed exposed to be removed out of the way of it by the assistant jurisdiction of equity" (Rhead v. Hounson, 46 Mich. 243). In Bridgman v. McKissick (15 Iowa, 260 [1863]), the defendant had purchased a piece of land, but, with intent to defraud his creditors, had the title conveyed to his wife. Bone, a creditor, sued out attachment, and levied on the property and in due course secured judgment. Execution was promptly issued, and at the sale Bone became the purchaser. Immediately following this, McKissick confessed judgment for more than the value of the land in favor of Bridgman, another creditor, who thereupon filed a creditor's bill, demanding that his judgment lien be decreed superior to the rights of Bone, upon the ground that he first invoked the aid of equity. It will be observed that as McKissick paid for the land with money which ought to have been surrendered to his creditors, the law declared a resulting trust; concede that the fraudulent pur- Fourth. Having exhausted his legal remedies pose precluded McKissick from claiming under it, without result, equity may be invoked to use its the statute preserved the rights of creditors unim- process to sequester the assets of the debtor which paired. And, as equitable estates might be sold the law is unable to reach. This and this only is under legal executions, exactly as legal estates the creditor's bill proper. As every writer on might be, it is perfectly clear that Bone bought and fraudulent conveyancing states these propositions owned everything except the naked legal title. The and cites the authorities sustaining them, it is uncourt, however, held that it had been settled by necessary to refer to them further here. Examining Harrison v. Kramer (supra), that the defrauded the McKissick case, it is first to be observed that creditor has two remedies: "To levy upon and sell the court wholly misunderstood the authorities whatever interest the judgment-debtor may have in that it supposed gave precedence to the first equity the premises and afterwards go into chancery to suitor. This resulted from assuming that the law quiet the title and remove the cloud; or, they may, afforded only the two remedies described in the in the first instance, after the return of an execution opinion. In cases like that of McKissick such trust unsatisfied, commence their suit in equity to remove exists in favor of all the creditors of the person who the obstruction and subject the property to the sat-pays the consideration; one creditor cannot acquire isfaction of the claim. And this, we understand to a preference by taking proceedings in equity" be the doctrine of the books." It was then ruled (Wait on Fraud Conv. p. 108, n. 2). that it had long been held that mere equity or secret hidden trust is not available at law and that the first creditor invoking the aid of equity obtains priority thereby. Seldom has more error been crowded into so small a compass as in this leading case of Iowa. Again, while some courts have held that realty purchased by the debtor, but conveyed to a third party in trust, could not be reached by legal process, a number of courts have held to the contrary (See Wait, No. 57). But, the reasoning of the courts cited by the Iowa court rested upon the propThe "doctrine of the books" is radically different osition that the estate was equitable and for that from the Iowa conception. Instead of two reme- reason a mere legal writ was incapable of seizing it. We have seen that since 1840, equitable estates in than that given by the law. But jurisdiction is not Iowa might be sold under legal writs. In explaining this case, in Lippincott v. Wilson (40 Iowa, 425), it was said, "In fact, having procured the conveyance to be made to his wife for a fraudulent purpose, he had no interest that he could enforce as against her. Between them, the conveyance was absolute." And this, it was declared, was the determining fact in the case. Why, as between them, was the conveyance absolute? The statute of Eliz. so declared. But, it even more explicitly announces that it shall frustrate, so far as the rights and remedies of creditors are concerned. It is the general rule that creditors take through their debtors. That general rule the Iowa court has always assumed to exist with reference to fraudulent conveyances. So supposing, it conceived it impossible for the grantor to convey more than the bare legal title. We have seen that the theory of the statute is the exact opposite. 66 assumed upon the ground either that the subject is appropriate to a court of equity as a court of peculiar jurisdiction, or because that court proceeds upon an interpretation of the statute distinct and different from that given at law." In an exhaustive note in 17 Am. Dec. 185, 187, Mr. Freeman says: A transfer made to hinder, delay or defraud creditors, while as between the parties it conveys the title, has, as against a creditor proceeding under execution, no such effect. As against the fraudulent transferee, the creditor may seize the property, whether real or personal, as that of the fraudulent vendor and may proceed to sell it under execution. The title transferred by such sale is not a mere equity not the right to control the legal title and to have the fraudulent transfer vacated by some appropriate proceeding. It is the legal title itself, against which the fraudulent transfer is no transfer at all (Freeman on Executions, 136). * * * And creditors, pursuing the remedies which the law gives them, for the collection of their debts, may treat the property as though the transfer had not been made, that is, as the property of the debtor." It is quite clear that this learned author or the Supreme Court of Iowa is ignorant. In Howland v. Knox (59 Iowa, 46, 48) it was said: "As to all the world, excepting his creditors, the conveyance to Woods was valid and unimpeachable. As to his creditors, it was voidable only, and they could subject the property to the payment of their debts only by uncovering the fraud by an action in chancery. A levy of an execution upon this land, Wait (No. 51, 3d Ed.), says: "But where the legal and a sale without other proceedings, would be title has been in the debtor so as to be subject to wholly unavailing. When a debtor fraudulently execution at law, and might be made available for conveys property, to defeat his creditors, the credi- the satisfaction of the debt if the fraudulent contors may, after judgment, adopt one of two courses. veyance had not been interposed, the creditor, or a They may, by an action in chancery, subject the third person, having taken title under a sheriff's property to the payment of their judgments, or sale, may bring ejectment and avoid the fraudulent they may levy upon the property and sell, and after- conveyance by proof of the illegal purpose for ward go into chancery and quiet their title (Harri- which it was made." And, in No. 69, he says: “The son v. Kramer, 3 Ia. 543). But a sale on execution fraudulent transfer is not generally regarded as being without such subsequent action would confer a effectual against creditors; it does not, as to them, mere barren right without value, because the legal divest the debtor's title, but his interest remains, title of the fraudulent grantee, without an adjudica- subject to their remedies, and may be seized and tion against him, would be an insuperable barrier sold on execution. The property may be treated to the acquisition of right, title or possession." It and reached by creditors as though the transfer had is pertinent to inquire why, without the adjudication never been made. The theory concerning a frauduof a court of equity against him, the legal title of lent conveyance is that it has only the color and the fraudulent grantee would present an insuperable appearance of a valid act, and is not itself effectual" barrier to the acquisition of right, title or posses- (See, also, American and English Encyclopedia of sion by a creditor under legal procedure? Let it Law, 2d Ed., Vol. 14, p. 310). In Smith's “Equitabe carried in mind that the statute of Eliz. is "part ble Remedies of Creditors" (1899), it is said that of the unwritten law" of Iowa (Gardner v. Cole, 21 where the debtor has fraudulently conveyed his Iowa, 205, 210). That statute declares the deed frus-realty, the creditor, having secured judgment, may: trate, void and of none effect. In what other tribu- (a.) Sell under execution, buy at the sale, and, nal was it ever held that such a title could only be assailed in chancery? The court, furthermore, assumes that equity has only jurisdiction of fraud. From the earliest times the jurisdiction has been concurrent, and so the authorities hold, without conflict, outside of Iowa. Let us look at some of them. Bump (No. 530, 4th Ed.) advises that the transfer is void at law as well as in equity; is treated as a nullity everywhere; that a law court takes cognizance of the fraud as well as a court of In the following States it has been ruled that the equity. In No. 532 that author says: "The relief purchaser of realty fraudulently conveyed, buying in equity is different and may be more beneficial at execution sale, may maintain ejectment to secure having secured deed, gain possession by ejectment, in that action showing the fraudulent character of the deed of his adversary, hence, its invalidity. (b.) Levy, then file bill to cancel the fraudulent conveyance that prevents free competition at the sheriff's sale by clouding the title. (c.) Having secured deed at sheriff's sale, file bill to cancel the fraudulent conveyance and quiet his title. possession and in that action try the title of the grantee: Alabama (High v. Helms, 14 Ala. 350; 48 Am. Dec. 103); Arkansas (Hershy v. Latham, 42 Ark. 305); California (First National Bank v. Maxwell, 123 Cal. 360, 371; 69 Am. St. Rep. 64, 74); Connecticut (Staples v. Bradley, 23 Conn. 167; 60 Am. Dec. 630); Colorado (Knox v. McFarren, 4 Colo. 586); Florida (Logan v. Logan, 22 Fla. 561); Georgia (Barber v. Ferrell, 54 Ga. 146); Indiana (Sanders v. Muegge, 91 Ind. 214); Illinois (Union Nat. Bank v. Lane, 177 Ill. 171, 175; 69 Am. St. Rep. 217, 219); Kentucky (Scott's Executors v. Scott, 85 Ky. 385); Maine (Hall v. Sands, 52 Me. 355); Maryland (Foley v. Bitter, 34 Md. 646); Massachusetts (Pratt v. Wheeler, 6 Gray, 520); Michigan (Cleland v. Taylor, 3 Mich. 202); Mississippi (Thomason v. Neeley, 50 Miss. 131); Missouri (Potter v. Adams, 125 Mo. 118; 46 Am. St. Rep. 481); New Hampshire (Russell v. Dyer, 33 N. H. 186); New Jersey (Mulford v. Tunis, 5 Vr. 256); New York (Smith v. Reid, 134 N. Y. 568); Ohio (Westerman v. Westerman, 25 O. St. 500); Pennsylvania (Jacoby's Appeal, 67 Pa. St. 434); Rhode Island (Beckwith v. Burrough, 14 R. I. 366); Tennessee (Smitheal v. Gray, 1 Humph. 492). It is believed that neither in this country nor in England can any case be produced to the contrary, outside of Iowa and Nebraska. grantor could have had but a mere equitable interest. A levy and sale could be made of such interest only when it was coupled with possession of the real property to be levied upon. If there was only an equitable interest held by the defendant, the property could be subjected only by equitable proceedings brought for that purpose. In Dworak v. Moore (25 Neb. 735), the following language was used: 'Under our statute, the levy of an ordinary execution upon an equitable interest in real estate, unless the debtor is in possession, will not pass the title of such real estate, as such execution can be levied only on a legal interest.' If a creditor desires to reach an equity, he may, upon the return of an execution unsatisfied, invoke the aid of a court of chancery to obtain equitable relief." That decision absolutely exempts from assault, every piece of real estate fraudulently conveyed where the debtor absconds the State or is a non-resident of it. It is needless to state that these decisions afford great aid to the successful perpetration of fraud upon creditors. It has for centuries been axiomatic that the statute should be liberally construed to prevent fraud. In these two States we have seen that statute deliberately nullified, to the great protection of fraud. And this has been done in the face of language so clear as to admit of but one construction. It has been done, too, against the unanimous voices of text writers and of all courts speaking upon the subject. Is this remarkable perversion of the law due to the fact that in half a nor the authorities or writers construing it? Or must their attitude be ascribed to motive? OMAHA, Neb., April, 1901. JAS. MCCABE. THE EVOLUTION AND BASIS OF OUR [This article originally was written to be presented to the United States Supreme Court, as a brief in the Insular Cases. Upon further consideration it was not proffered to the court, and is now, for the first time, printed as a contribution by an independent thinker, to the study of the questions involved.] The position of the Iowa court is clearly defined in the recent case of Boggs v. Douglass (89 Iowa, 150), where (p. 157), it is said: "It is the wellsettled rule in this State that the levy of an attach-century these courts have neither read this statute ment upon real estate which the attachment debtor has conveyed to another to defraud his creditors, unless followed by supplemental proceedings, creates no lien upon the property so attached. It is true that the interest of a debtor in real property subject to execution, whether legal or equitable, may be seized and sold at the suit of a creditor. But that rule does not apply to a case where the debtor has divested himself of all right to and interest in the property by an absolute conveyance to another. When that is done, he ceases to have any interest in the property which a court would enforce at his suit. Such a conveyance would be good, except as against creditors, and the levy of an attachment upon the property conveyed, without more, would not operate to create a lien (Clark v. Raymond, 84 Iowa, 251; Boyle v. Maroney, 73 Iowa, 70. 71; Howland v. Knox, 59 Iowa, 46). “It accordingly follows that one attaching fraudulently conveyed real estate, even after he has secured judgment, may not redeem from prior mortgages, judges or from execution or tax sales because destitute of lien (Howland v. Knox, supra). In Nebraska, it was ruled some years since that the equitable estate of the debtor can only be seized by a legal writ when the debtor is in possession of the property. One Harvey made a fraudulent conveyance surrendering possession to the grantee and absconded the State. A creditor attached. He was told that the legal title being in the grantee, the In the past century evolution has done nothing of vaster importance in the field of statecraft, than the complete unfolding of the notion of the real nationality of the United States. The Porto Rico cases, now before the Supreme Court, afford that highest of earthly tribunals an occasion for an authoritative declaration of true nationality. They also serve as a tangible illustration of the need of the establishment of the views which are suggested in this article. There are two principal cases. In the De Lima case the question relates to duties collected after the treaty and before the Foraker act of congress. |