Opinion of the Court.

paying any of his indebtedness for at least four years, the length of time the shortest note had to run; an opportunity was secured to make use of the means to coerce creditors into compromises of their claims, and to constrain them to accept real estate in satisfaction of debts, at such prices as might be satisfactory to the debtor.

Whatever the real motives of the parties, such a disposition of a debtor's property is a legal fraud. Bump Fraud. Conv. 68, and cases cited in note.

A debtor, in failing circumstances, is only allowed to place his property beyond the reach of his creditors by making a general assignment of it, when he does so for the benefit of the creditors, by devoting it unreservedly to the payment of his debts, and not with a view to his advantage, in delaying until a favorable time the appropriation of the property for such purpose. Nesbitt et al. v. Digby et al. 13 Ill. 387.

In regard to the conveyances from William to Myron Phelps, it appears that the latter held two promissory notes executed to him by S. S. Phelps & Co., bearing date at St. Louis, Mo., April 1, 1858, one for $12,000, payable one year after date, with interest at ten per cent per annum after maturity, and the other for $10,000, payable two years after date, with interest at ten per cent per annum after one year. That in August, 1871, on the application of William Phelps, and his representation that he wanted to get the notes to apply in part payment of property he was about purchasing from S. S. Phelps and S. S. Phelps & Co., Myron Phelps sold and assigned said notes to William Phelps, and took in payment therefor the note of the latter for the sum of $25,594.43, that being the amount then due on the said notes of S. S. Phelps & Co.; that such note of William Phelps was to be paid in sums of $5000 or more, yearly, as fast as he could realize it out of the property he was about to purchase of S. S. Phelps and S. S. Phelps & Co., the whole sum to be paid within five years from the date of the note, with the privilege of paying property, at cash value, if unable to realize money from the prop

8-80TH ILL.

Opinion of the Court.

erty; and that the conveyances in question, from William Phelps to Myron Phelps, of a large amount of the property which had been conveyed by S. S. Phelps to William Phelps, though absolute in form, were taken as security for the payment of said note of William Phelps, Myron Phelps making, at the same time, a verbal agreement to reconvey the property to William Phelps upon payment of the note. From time to time, afterwards, Myron Phelps, without receiving any consideration, executed conveyances of divers pieces of the property, as William Phelps found purchasers there for.

The decree found these conveyances to Myron Phelps to be fraudulent, and declared them to be void as against the complainants. The propriety of this part of the decree, we think, must depend upon the question whether the two notes of S. S. Phelps & Co. to Myron Phelps, of April 1, 1858, were given for a bona fide indebtedness, and remained unpaid at the time of their transfer to William Phelps.

The answers show, and they are sustained in this respect by the evidence, that the notes were given for $20,000, money lent by Myron Phelps to S. S. Phelps & Co., and that only a payment of $1700.15, May 7, 1861, had ever been made on them. There is nothing whatever in the evidence contradictory thereto, more than the circumstances of the case which have been detailed. It must be considered, under the proofs, that Myron Phelps took the conveyances to him as security for the payment of a just indebtedness due him, and we see no sufficient reason why he should not be allowed to hold them for such purpose.

Whatever may have been the character of the transaction between S. S. Phelps and William Phelps, we find no sufficient evidence to connect Myron Phelps with it, either as a participant or as having knowledge thereof. It would seem, at the most, that the conveyances to Myron Phelps were no more than constructively fraudulent, and the rule is well settled, in equity, that when a security or conveyance is set aside as constructively fraudulent, it may be upheld, in favor of

Opinion of the Court.

one not guilty of any actual fraud, to the extent of the actual consideration, and be vacated only as to the excess. Wright et al. v. Stanard, 2 Brockenbrough, 312; Coley v. Coley, 1 McCarter Ch. R. 350; Demorest v. Terhune, 3 C. E. Green Ch. R. 532; Boyd v. Dunlap, 1 Johns. Ch. 478; Clements v. Moore, 6 Wall. 299.

We are of opinion, then, that the decree was wrong in declaring the conveyances from William to Myron Phelps to be utterly void as against the complainants, and appropriating the real estate therein described unqualifiedly to the satisfaction of the debts due to the complainants. We think the debt due from William to Myron Phelps was entitled to priority of payment out of that real estate.

The decree declared a lien upon certain specified portions of the real estate described in the last mentioned conveyances, for the satisfaction of the sum of $9808.96, the amount due to the complainants from "said defendants," and the costs of the suit, and then ordered that "said defendants" pay to the master in chancery the amount so due to the complainants, together with interest and costs, in ninety days, which payment should discharge the lien, and then directed that, in default of payment, such real estate be sold for satisfaction of said amount. This appears to be a personal decree against S. S. Phelps, William Phelps and Myron Phelps jointly, in favor of the complainants, for the amount of their judgments. There is surely nothing in the record to justify any personal decree against Myron Phelps, nor, as we can see, against William Phelps, to the extent of the amount due the complainants. The decree is erroneous in this respect.

The decree is further for a recovery by the complainants against William Phelps, of $8711.75. This appears to be for indebtedness from William to S. S. Phelps, and for avails of fraudulently conveyed property received by William Phelps.

Besides the general objection, of no fraud in the conveyances, it is objected to this portion of the decree, that it is an

Opinion of the Court.

additional decree for part of the amount due the complainants, making a double recovery to that extent, and that the decree is in favor of complainants jointly for the amount of their several judgments, this last objection being likewise made to the joint personal decree against the defendants. This decree against William Phelps alone was not an absolute one, but conditional upon the insufficiency of the real estate upon which a lien was declared, to satisfy the complainants' judg ments, and was to stand as a decree only for any deficiency, not exceeding such sum recovered, of the real estate, to satisfy the declared amount of said judgments, such deficiency, if any, to be ascertained by a sale of the real estate.

As to the joint form of the decree in favor of complainants, however it may be as to the personal decree against all the defendants, we do not find it to be such in fact as respects the decree against William Phelps alone. The decree against him is in favor of the complainants for the amount of the recovery in the proportion which the respective claims of each of them bear to such amount, the precise amount then due on each of their respective claims having been previously found by the decree. These objections are without force.

Any debts of S. S. Phelps, or of S. S. Phelps & Co., which William Phelps may have paid previously to the filing of the present bill, should be deducted from whatever proceeds he may have received from the fraudulently conveyed property; and in rendering any personal decree against him on account of said proceeds, it should only be for the balance after such deduction. But the answers are not to be received as evidence of any such payments. They must be established by other proof.

The bill in this cause was filed September 24, 1862. The complainants' judgments were recovered in May, 1862. At the March term, 1872, of the circuit court, the defendants filed their cross-bill herein, setting forth that, since filing their answers. in September, 1863, Stephen S. Phelps filed in the District Court of the United States for the Northern District

Opinion of the Court.

of Illinois, on the 26th day of February, 1868, his petition in bankruptcy; that, on the 7th day of March, 1868, he was adjudged a bankrupt; that, on the 15th day of June, 1868, one Elias Willets was appointed his assignee in bankruptcy; that, on the 12th day of January, 1869, said Phelps was discharged by said District Court from all his debts existing in 1868, save those excepted by act of Congress, and received his final order of discharge in bankruptcy; that the debts due complainants existed long before 1868, and were not excepted by the act of Congress; that the assignee accepted the office and discharged its duties to the approval of the District Court, made final settlement, and had been by the District Court discharged; that complainants did not prove any of their debts in the Bankrupt Court, nor did the assignee ever interfere in this cause in any way.

The circuit court sustained a demurrer to the cross-bill, and dismissed the same, and this is assigned for error.

We perceive nothing in the matter of the cross-bill which should constitute a bar to complainants' claim for relief. The fraudulent conveyances, here, were not void, but only voidable by creditors, so that the property embraced in the conveyances did not vest absolutely in the assignee in bankruptcy as a portion of the bankrupt's estate; there was merely an option with the assignee, on behalf of the creditors, to impeach and avoid the conveyances or not, as he might see fit. He saw fit not to do so. Hence the bankruptcy proceeding seems to be without effect as respects this property, unless to debar other creditors from asserting any claim with regard to it, by reason of the discharge of their demands. Phelps' final discharge in bankruptcy from his liabilities should not operate to deprive the complainants of the benefit of their priority and right of lien which they acquired in respect to the property involved in their bill, by the filing of the same, They are entitled, we conceive, to the fruits of their diligence in the institution of their suit, notwithstanding the intervening proceeding in bankruptcy.