Hills v. Sherwood

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Docket Number

3,180

Attorney(S)

B. S. Brooks, for the Appellants. Wm. Matthews, for the Respondent.

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Smart Summary

Factual and Procedural Background

Maria Josefa Soto married Gil Cano about 1840; Cano died in December 1844 leaving children. Maria Josefa then married James Stokes in 1844 and had children; she died intestate September 16, 1858. James Stokes was appointed administrator of her estate, later died testate September 28, 1864. Josefa owned separate real property (northern half of Rancho Capay in Tehama County and a 500-acre lot in Santa Clara County). Stokes purchased the Rancho de Vergeles, which became community property and was confirmed by U.S. courts in 1858, but that confirmation was later reversed by the U.S. Supreme Court and the property ultimately rejected by the District Court. On December 1, 1855, Stokes conveyed the Cambuston Rancho to the plaintiff with a covenant to repay if the Mexican title was not finally confirmed. After litigation and transfers to his wife Arabella and her sister Sarah R. Clark (alleged fraudulent conveyances), the plaintiff obtained judgment against Stokes' executors in Hillsp. v. (reported as 33 Cal. 474) and, upon nonpayment, filed the present equity action seeking to have the deed to Arabella declared fraudulent, a sale of the land, and application of proceeds to his judgment. Defendants included Stokes' executors, the administrator of Josefa's estate, Josefa's children by Cano, Stokes' children, and transferees from Arabella. The trial court decreed a sale of twenty undivided twenty-eighths of the Rancho (excluding what Josefa's children inherited) to apply to plaintiff's judgment. Certain defendants appealed.

Legal Issues Presented

Whether a judgment creditor of a decedent (the plaintiff) may maintain an action in equity to reach property alleged to have been fraudulently conveyed by the decedent in his lifetime, rather than the executor bringing the action.
Whether the prior judgment in Stokes v. Sherwood and Winterburn is a bar or estoppel to the present equitable action.

Arguments of the Parties

Appellants' Arguments

The plaintiff, as a judgment creditor of James Stokes' estate, cannot maintain the present action to reach property fraudulently conveyed by the decedent; such an action must be brought by the executors/administrator.
The judgment in Stokes v. Sherwood and Winterburn is an estoppel and a bar to the present action, binding creditors and those in privity with the executors.

Respondent's Arguments

Counsel for the respondent argued that the authorities cited by appellants do not sustain their assignment of error and that many cited cases do not support dismissal of a creditor's bill against a fraudulent grantee.
The respondent argued that in Stokes v. Sherwood and Winterburn the executors were not sued as executors and the judgment at law did not bar a bill in equity where equitable relief (not pleaded at law) is sought; thus the prior judgment is not necessarily a bar.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bate v. Graham, 11 N.Y. 239	Cited by appellants for the proposition that, absent neglect or refusal by an executor, a creditor cannot maintain such an action.	Court noted it was among authorities cited by appellants but found none in the list sustained their argument.
Babcock v. Booth, 2 Hill, 186	Cited by appellants on creditors' inability to maintain action absent executor's neglect.	Court observed the list did not support appellants' contention.
Danzey v. Smith, 4 Texas, 414	Cited by appellants for the same proposition regarding creditors' rights.	Court treated it as cited but not determinative for appellants' position.
Hogan v. Walker, 14 How. U.S. 34	Cited by appellants regarding creditors' remedies and executor duties.	Court included it among cited authorities but did not find it controlling for appellants.
Brockman v. Bowman, 1 Hill, 338	Cited by appellants on creditors' rights vs. executor's duty.	Court noted it was cited but not outcome-determinative for appellants.
Pearley v. Barney, 1 Chip. 335	Cited by appellants on creditors' remedies.	Court listed it among authorities but did not accept appellants' reliance.
Simpson v. Simpson, 7 Humph. 277	Cited by appellants in support of their procedural/contention.	Court observed it was among cited cases but not sustaining appellants' argument.
Thompson v. Brown, 4 Johns. Ch. 636	Cited by appellants regarding creditors' inability to maintain action independently of executor.	Court regarded it as cited authority but found appellants' list unpersuasive.
Curtiss v. Herrick, 14 Cal. 117	Cited for rule that judgment against executors binds creditors/privity and supports estoppel.	Court cited it among authorities supporting the estoppel principle discussed by appellants.
Teschmacher v. Thompson, 18 Cal. 11	Cited for the principle that judgments in such suits bind those in privity.	Used by court as part of the authorities explaining estoppel/ binding effect of judgments.
Halleck v. Mixer, 16 Cal. 579	Cited on the binding effect of judgments against executors upon creditors.	Included among California authorities on estoppel; court referenced it in discussion.
Curtiss v. Sutter, 15 Cal. 264	Cited on similar estoppel/privity principles regarding judgments affecting estates.	Referenced as part of the body of authorities on judgments binding creditors.
Harwood v. Marye, 8 Cal. 580	Cited for the proposition that judgment against executors binds those in privity.	Cited by court among cases illustrating estoppel effect of judgments.
Meeks v. Hahn, 20 Cal. 620	Cited for the binding effect of judgments on parties in privity.	Included in court's list of authorities on estoppel and binding judgments.
Estate of Woodsworth, 31 Cal. 604	Cited regarding judgments in estate/representative proceedings binding interested parties.	Used by court as part of the cited authorities on judgment effect.
Caperton v. Schmidt, 26 Cal. 490	Cited concerning judgment effect and privity with executors.	Included among authorities on estoppel by judgment.
Marshall v. Shafter, 32 Cal. 189	Cited in discussion of judgments binding those in privity with executors.	Cited by court as part of the authority list.
Valentine v. Mahoney, 38 Cal. 389	Cited for similar estoppel/privity principles.	Referenced among cases on binding effect of judgments in estate matters.
Tyler v. Houghton, 25 Cal. 29	Cited regarding judgments binding parties in privity and estoppel.	Included in court's compilation of authorities on the subject.
Bryant v. Bryant, 2 Robs. Supr. Ct. N.Y. 612	Cited for the proposition that fraud in a conveyance is a defense and that executors should act to protect estate assets.	Cited by court as authority supporting the defense of fraud to actions and executor duties.
Canfield v. Monger, 12 Johns. 347	Cited on fraud as a defense to conveyances affecting creditors.	Used to illustrate established law that fraudulent conveyances may be set aside.
Le Guen v. Gouvernour, 1 Johns. Cas. 491	Cited in support of fraud defenses and remedies against fraudulent transferees.	Referenced by court in discussing available defenses and executor duties.
Juyne's Case, 1 Smith Leading Cases, 33	Cited as authority on fraud in conveyances and creditor remedies.	Included among classical authorities referenced by court.
1 American Leading Cases, 69	Cited for statement that creditors may go into equity against property in hands of fraudulent grantee.	Quoted by court to support that creditors have independent remedies at common law.
McKee v. Gilcrist, 3 Watts, 230	Cited on remedies against fraudulent grantees and executor duties.	Referenced as authority for the cited principles.
Engelbert v. Blangot, 2 Whart. 240, 245	Cited regarding fraudulent conveyances and creditor remedies.	Included among authorities supporting creditor-equity remedies.
Moseley v. Moseley, (15 N.Y. 334)	Cited for Justice Denio's refusal to allow a defendant (not a creditor) to show a deed fraudulent in that context.	Cited by counsel and noted by court: illustrates limits on who may assert certain defenses at law.
Brownell v. Curtis, (10 Paige, 210)	Cited for the rule that a debtor's voluntary assignment cannot defeat creditors' rights to set aside fraudulent transfers.	Cited in discussion showing creditors retain equitable remedies.
Manhattan Co. v. Osgood, 15 Johns. 162	Cited in support of creditors' rights against fraudulent transfers despite voluntary assignments.	Included among authorities cited by counsel and discussed by court.
Hagar v. Walker, 14 How. 29	Cited on creditors' remedies and limitations of assignments affecting creditors.	Referenced by court as part of the authorities bearing on creditors' equitable remedies.
Peasly v. Barney, 1 Chip. 331	Cited regarding creditors' equitable rights to set aside fraudulent transactions.	Included among cited authorities.
Bank of United States v. Burke, 4 Blackf. 141	Cited for proposition regarding conveyance effect and creditor remedies (and cited as Bank of U.S. v. Burke elsewhere).	Court referred to it in discussing conveyance vesting and available remedies.
Lorraine v. Long, 6 Cal. 453	Cited for rule that a judgment at law is not a bar to an equitable bill when equitable matters were not pleaded at law.	Cited by court to support that equitable relief may still be available despite a prior legal judgment.
Hough v. Waters, 30 Cal. 309	Cited for the doctrine that matters of equitable cognizance not pleaded at law prevent the legal judgment from being a bar to a bill in equity.	Used by court to justify that the prior ejectment judgment did not necessarily bar equitable relief.
Ayres v. Bensley, 32 Cal. 620	Cited reaffirming that if equitable matters were not pleaded at law, the judgment is not a bar to a bill in equity.	Cited by court as controlling California authority on the point.
Hager v. Shindler, 29 Cal. 55	Cited for the general rule that equity jurisdiction is limited to cases where there is no plain, adequate and complete remedy at law.	Cited by court to frame the standard for invoking equitable relief where remedies are concurrent but legal remedies are inadequate for the relief sought.
Bank of U.S. v. Burke, 4 Blackf. R. 141	Cited for the proposition that a conveyance vests the grantee with the grantor's estate in the land as against grantor and heirs.	Cited by court when explaining the legal effect of Stokes' conveyance to his wife.
McLaughlin v. Bank of Potomac, 7 How. U.S. R. 221	Cited for the proposition that a judgment against the executor proves the indebtedness prima facie in favor of the plaintiff as against grantees of the testator.	Applied by court to support that the plaintiff's judgment against executors gives him prima facie status against grantees.
Stokes v. Sherwood and Winterburn	Pertinent prior judgment concerning title/possession of the Rancho Vergeles rendered against the executors; relied on by appellants as an estoppel.	Court considered whether that judgment barred the present equitable action and concluded that where equitable relief (not presented at law) is sought, the prior judgment is not necessarily a bar.
Morrison v. Wilson	Mentioned by counsel in authorities relevant to whether a legal judgment bars equitable relief.	Cited in argument; court referenced cases treating the interplay of law and equity but relied on California authorities cited.
Gray v. Dougherty	Mentioned by counsel in connection with law/equity pleading issues.	Noted in argument; court distinguished by referring to controlling California decisions.

Court's Reasoning and Analysis

The court first acknowledged appellants' contention that the prior judgment (Stokes v. Sherwood and Winterburn) might bind creditors and that a creditor cannot maintain an action to reach property fraudulently conveyed by the decedent. The court admitted, for purposes of opinion, that a judgment against executors would bind creditors to the same extent as the executors. However, the court emphasized that where the relief sought is peculiarly equitable in nature and was not presented in the prior legal action, the prior judgment at law is not a bar to an equitable bill. The court applied the general rule that equity jurisdiction is limited to cases where legal remedies are not plain, adequate and complete, and found the present case one in which the remedy sought (annulment of conveyances as against creditors and a decree for sale to apply proceeds to a creditor's judgment) could not be adequately administered in a court of law absent equitable proceedings or appropriate pleadings at law.

The court reviewed statutory authority (Probate Act §§202–203) allowing an executor or administrator to prosecute suits to set aside fraudulent conveyances upon a creditor's application, but reasoned that the statute did not exclude creditors from bringing suits under the general law; creditors possess independent remedies (including equitable remedies) against fraudulent grantees. The court further explained the legal effect of the conveyance (vested estate in the grantee as against grantor and heirs) and noted that, absent other creditors shown in the record, there was no reason a court of equity should not decree a sale of the premises and apply the proceeds to the plaintiff's debt. Finally, the court held that the plaintiff's judgment against the executors established indebtedness prima facie against the grantees.

Holding and Implications

Judgment and order denying motion for new trial affirmed.

Implications: The trial court's decree (ordering sale of the specified undivided interests and application of proceeds to the plaintiff's judgment) is upheld. The opinion confirms that a judgment creditor may, in appropriate circumstances and where equitable relief is required and not adequately obtainable at law, maintain an equitable action to reach property alleged to have been fraudulently conveyed by a decedent; and that a prior judgment at law does not necessarily bar such equitable relief when equitable matters were not litigated or pleaded at law. The court did not announce a novel rule beyond applying existing statutory and common-law principles.

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MILES HILLS v. FREDERICK SHERWOOD et al.

The counsel for the appellantsclaims that the plaintiff, who is a judgment creditor, cannot maintain this action, but that the action should have been brought by the executors of Stokes.

The learned counsel of appellants has cited numerous authorities in suport of this assignment of error, and after a careful examination of the list, I submit that not one of the number sustains his argument. Amongst them no case is found, in which a bill by a creditor against an administrator, a fraudulent grantee of a decedent, to annul a fraudulent assignment, or conveyance, has been dismissed.

Justice Denio, in Moseley v. Moseley, (15 N.Y. 334) refused to allow a defendant to show a deed fraudulent, saying: " The defendant is not a creditor, and he does not claim under a title arising out of any proceedings instituted by creditors." (Id. 336.)

Brownell v. Curtis, (10 Paige, 210) was a creditor's bill, seeking, besides other relief, to have a fraudulent cancellation of a debt set aside. The bill was against the perpetrators of the fraud, who were still living; and one of the defenses interposed, was, that the debtor had, before suit, made a voluntary assignment of all his effects to trustees for the benefitof his creditors.

This plea was overruled by the Court, the Chancellor (Walworth) saying: " I think he (the debtor) cannot, by an assignment which is wholly voluntary on his part, take away the right of his creditors generally, to set aside the fraudulent transfer, or to recover the debt fraudulently discharged, and transfer that right to his own assignee for the benefit of preferred creditors, or even for the benefit of all his creditors equally." (Thompson v. Brown, 4 Johns. Ch. 619; Manhattan Co. v. Osgood, 15 Johns. 162; Bryant v. Bryant, 2 Robertson, R. J. 612; Danzey v. Smith, 4 Tex. 414; Hagar v. Walker, 14 How. 29; Peasly v. Barney, 1 Chip. 331; Simpson v. Simpson, 7 Hump. Tenn. 275; Bank of United States v. Burke, 4 Blackf. 141.)

The second error assigned is that the Court should have held the judgment in Stokes v. Sherwood and Winterburn, a bar to this action. In answer, the respondent might content himself with saying, that Sherwood and Winterburn were not sued as executors of Stokes, nor did judgment pass against them as executors. That the deed was in fraud of creditors, was not pleaded, and in Lorraine v. Long, (6 Cal. 453) and in Hough v. Waters, (30 Cal. 311) it was declared that unless matters of equitable cognizance were pleaded, the judgment at law was not a bar to a bill addressed to the equity side of the Court. And in the latter case they say, that Morrison v. Wilson, and Gray v. Dougherty, cited by counsel, are not when rightly understood in conflict with this view. In Ayres v. Bensley, (32 Id. 620) the question was again considered, and, after it was fully debated by counsel, the same doctrine was reaffirmed.

JUDGES: McKinstry, J.

OPINION

McKINSTRY, Judge

The defendant claims that the judgment in Stokes v. Sherwood and Winterburn is a bar to the present action.

For the purposes of this opinion it may be admitted that the judgment would bind the creditors of the estate of James Stokes to the same extent as the executors themselves would be bound; and that the defendants in ejectment would have been permitted to attack the deed made by the testator in his life-time, as made in fraud of his creditors. If, however, the matter relied on or relief sought is peculiarly of equitable cognizance, the judgment at law is not a bar to a bill addressed by the defendants in the ejectment, as plaintiffs, to the equity side of the District Court. (Lorraine v. Long, 6 Cal. 453; Hough v. Waters, 30 Cal. 309; Ayres v. Bensley, 32 Cal. 620.)

The general rule is that the jurisdiction in equity is limited to cases where there is no remedy at law, or none that is plain, adequate and complete. The application here is made in a case where the jurisdiction is, to some extent, concurrent, but where the peculiar remedy sought cannot be administered in a Court of law. The defendants in ejectment would perhaps have been able to maintain their possession, on the ground that the deeds of the testator and of Sarah R. Clark were void as against creditors; but they could not have obtained a decree annulling the deeds as against the creditors, except upon the allegations of a cross-complaint praying affirmative relief. " Before the case can be considered beyond the reach of a Court of equity, it must be made to appear that the legal remedy would be adequate and complete." (Hager v. Shindler, 29 Cal. 55.)

Appellants also contend that the plaintiff--as judgment creditor of the estate of James Stokes, deceased--cannot maintain an action to reach property fraudulently conveyed by the testator in his lifetime.

It was at one time much disputed whether an administrator could set aside a fraudulent conveyance of the personalty by the intestate; and, under our system, a fraudulent conveyance of the realty would stand upon a like footing. But the right of the executor or administrator to maintain suit was settled by sections two hundred and two and two hundred and three of the Probate Act. Those sections provide that the executor or administrator may (on the application of a creditor, who shall give security for costs and expenses) prosecute any proper action with reference to such fraudulent conveyance.

The purpose of the statute is accomplished by empowering the executor or administrator to prosecute the suit. It does not purport to exclude the creditors from bringing it, if they are authorized so to do by the general law. " The creditors have their remedies independently of the administrator; for a fraudulent donee, taking or keeping possession of the goods, is at common law liable as executor de son tort; and the creditors are entitled to go into equity against the property in the hands of the fraudulent grantee." (1 American Leading Cases, fourth edition, 43.)

The conveyance from James Stokes to his wife vested in her--as against the grantor and his heirs or devisees--his whole estate in the land conveyed. (Act concerning fraudulent conveyances, Sec. 20; Bank of U.S. v. Burke, 4 Blackf. R. 141.) Except for the sections of the Probate Act above referred to, the executor could not render available or reduce to assets that which the testator could not demand or recover; nor would the Probate Court have any control of the fund arising out of a sale of the property fraudulently conveyed. I express no opinion as to whether, if it appeared that there were other creditors than those who initiated the proceedings, the District Court would confine itself to annulling the conveyances as against all the creditors. Here it does not appear that there is any other creditor, and there can be no reason why a Court of equity should not decree a sale of the premises and an application of the proceeds to the plaintiff's debt. The judgment against the executor proves the indebtedness prima facie in favor of the plaintiff as against the grantees of the testator. (McLaughlin v. Bank of Potomac, 7 How. U.S. R. 221.)

Judgment and order denying motion for new trial affirmed.