THE point agitated upon the trial of this cause, turned on the
validity of a mortgage given to the plaintiff by Murgatroyd, to
secure to his wife, the amount of a legacy, which had been
bequeathed to her, by her grandmother. It appeared, that in the
year 1784, Murgatroyd had entered into articles of agreement with
trustees, by which he engaged to secure the legacy, in case he
should become insolvent. He received the money, and mixed it with
his other pecuniary funds; but took no steps to secure the amount
for his wife, until the execution of the present mortgage, in March
1802, when he was insolvent, and was soon afterwards duly declared
a bankrupt.
The case was considered, as a case of marriage settlement, by
the counsel on both sides.
In support of the settlement, the following authorities were
cited: 6 T. Rep. 154. 2 Bous. & Pull. 582. 6 T. Rep. 80. 2 Atk.
558. 1 Atk. 192. 1 P. Wms. 459. 2 Dall. Rep. 199.
In opposition to the settlement were cited, 1 Fonbl. 271, 272. 2
Atk. 480, 1. 8 T. Rep. 82.
SHIPPEN, Chief Justice. [304-Continued.]
The mortgage given by Murgatroyd is resisted on behalf of his
creditors, upon the general ground, that it was given in
contemplation of bankruptcy. There is but one exception to the
rule, which declares a conveyance so given to be void; namely,
where a creditor obtains a preference, by urging his debtor for
payment, and threatening him with legal process. The only question,
therefore, is a matter of fact, whether Murgatroyd, at the
execution of the mortgage, contemplated bankruptcy, and meant
voluntarily to prefer the particular creditor? If the evidence
proves the affirmative, the mortgage is void; but, if otherwise, it
is lawful and valid.
It has been urged, in favour of the plaintiff's claim, that
whatever may have been the situation of Murgatroyd, at the time of
executing the mortgage, the act was done, in pursuance of a
previous agreement, entered into for a valuable consideration, when
he was perfectly solvent. It would be grateful to our feelings on
the present occasion, could we express sentiments favourable to the
maintenance and fortunes of a wife and children; but we cannot seek
that gratification, through a sacrifice of the established
principles of law. The agreement was executory; and although it had
relation to a possible insolvency, it might, perhaps, independent
of the bankrupt law, have been carried into effect. But no
antecedent contract, can make the mortgage valid, upon the
provisions and principles of the bankrupt law, if Murgatroyd
Page 4 U.S.
304, 305
actually gave it, when he was insolvent, upon the eve of a legal
bankruptcy. The general creditors had then acquired an interest in
his estate; and it was too late to perform an engagement for giving
preferences and securities, at their expense, to any particular
creditor. The law respecting marriage settlements, is the same in
England and in Pennsylvania. It requires a fair motive, as well as
a valuable consideration; and the interest must be actually
declared and vested, at the time of a settlement, or it cannot
prevail against the rights of honest creditors. The present case,
by no means resembles the case of general Stewart's settlement.
There, Mr. M'Clenachan, on his daughter's marriage, delivered to
general Stewart a large sum in certificates of public debt,
expressly stipulating, that those certificates should be held and
appropriated to the use of Mrs. Stewart and the children of the
marriage. General Stewart always kept the fund represented by the
certificates, distinct from his own immediate funds; and although
he subscribed them, first to the new loan of Pennsylvania, and
afterwards to the general loan of the United States, constituting
the funding system, it was traced and ascertained, that the real
estate specified in the deed of settlement (which, it is true, was
made long after the marriage) had been, in fact, purchased with the
actual proceeds of the original certificates, delivered by Mr.
M'Clenachan upon the marriage. But here, the bequest of the legacy
was made without stipulation, or condition; the money being
received by Murgatroyd, was blended with his other property, so
that a separate existence, or application, could never be traced;
and, under these circumstances, he acquired a credit, which would
be false and delusive indeed, were the property now withdrawn, upon
an obsolete and latent pretence, from the creditors who trusted to
it.
SMITH, Justice. I am, likewise, of opinion, that the mortgage
must yield to the superior legal and equitable claims of the
general creditors. It is a sound and uniform rule, that settlements
made upon a wife and children, by persons who have not a sufficient
estate to pay all their debts, are void against creditors. The
decision upon general Stewart's settlement was not a departure from
the rule; but simply a recognition of the marriage portion of Mrs.
Stewart, transformed and ascertained in a new shape. The late, as
well as the present, Chief Justice, and myself, delivered our
opinions at large in that case; and united in the result, for the
reasons that have been suggested; none of which can be assigned in
favour of the present claim, under the mortgage. The jury,
according to the charge, found a verdict for the defendant. 1
Page 4 U.S.
304, 306
On the marriage of general Stewart with the daughter of Mr.
M'Clenachan, in the year 1781, he received, in real and personal
estate, a portion of 40,000l. Pennsylvania currency; of which loan
office certificates, for money loaned by Mr. M'Clenachan in 1777,
constituted about a moiety, bearing interest at six per cent. per
annum. In delivering the certificates, Mr. M'Clenachan told general
Stewart, 'that he might use the interest, but that the principal of
the certificates should be settled on his wife and children, and
appropriated sacredly to their exclusive use and benefit;' and
general Stewart promised expressly to make the stipulated
settlement and appropriation Soon afterwards general Stewart
entered into partnership with Mr. A. Nesbit, and prosecuted an
extensive scene of commerce, upon funds chiefly furnished by Mr.
M'Clenachan. In the year 1785 general Stewart went to England,
leaving the certificates in the hands of his partner (with whom
they had been specifically deposited several years before) and
taking a written receipt and promise, to return them to him, or to
his order, on demand. White in England, he made a will, dated the
7th of October 1787, which bequeathed the certificates to his wife
and children, but did not refer to any previous agreement, or
promise to do so. He returned to America in 1787, and soon
afterwards, assigned the certificates in trust to Mr. M'Clenachan
and his partner, for the use of his wife and children, by a deed
dated the 9th of June 1788; which was, also, silent as to any
previous agreement upon the subject; but referred to the will of
1787, or any other last will which he might make, for the
apportionment of the fund. The certificates were subscribed to the
new loan of Pennsylvania; but were re-exchanged, and finally
subscribed to the loan of the United States. The public stock
having risen to its full nominal value, general Stewart proposed to
Mr. M'Clenachan (Mr. Nesbit being dead) to sell it, and vest the
proceeds in houses, and city lots, as offering a better
speculation; to which Mr. M'Clenachan assented, upon the original
principle, that the investment should be for the use and benefit of
general Stewart's wife and children. The stock was, accordingly,
sold and transferred, between June 1791, and April 1792; and the
property in question was purchased, between March 1792, and
February 1793, to the value of about 25,000 dollars. On the 20th of
May 1793, general Stewart executed a deed before two witnesses,
conveying this property to Mr. M'Clenachan, and his son, George
M'Clenachan, in trust; and after reciting the deed of trust of
1787, the subsequent sale of the certificates, the investment of
the proceeds, and the intention, that the real estate, shall be
held to the same uses, as the certificates, according to the
apportionment of the will of 1787, or such other last will, as
general Stewart might make, it concludes with reserving a power of
revocation, by consent of both parties, to sell the trust estate,
and to vest the proceeds in other funds, but in the name of the
same trustees, and for the same uses. The deed being executed,
general Stewart delivered it to Mr. M'Clenachan, who deposited it,
for safe keeping (as he resided in the country) with other valuable
papers belonging to himself, in an iron chest, kept by general
Stewart in his counting-house. General Stewart died on the 14th of
June 1796, having, a few hours previously, made a will devising and
bequeathing all his estate, real and personal, with a power to sell
and convey, for the payment of his debts, and constituting Mrs.
Stewart an executrix, and Messrs. M'Clenachan, W. Tilghman, and F.
West executors, without referring to the deed of settlement, or any
previous agreement upon the subject. In May 1793, and at the time
of his death, he was generally supposed to be in affluent
circumstances; but about four months after his death, a contrary
suspicion arose, which subsequent events have confirmed. In taking
the inventory of his effects, the deed of settlement was found; but
the executors regarded it as incomplete and invalid. While, too,
the executors thought the estate rich, Mr. M'Clenachan himself
requested that the deed should be laid aside; and he and Mrs.
Stewart joined the other executors in selling and conveying part of
the trust property, for the payment of debts, under the power given
in the will of 1796. The failure of Morris and Nicholson's notes
(in which general Stewart and Mr. M'Clenachan had speculated
largely) and other disappointments, proved fatal to the estate; and
it was even ascertained, that, on a fair estimate, the general
balance of general Stewart's account of property and debts, was
against him, at the time that he executed the deed of 1793: but, on
the other hand, he was clearly solvent
Page 4 U.S.
304, 307
when he executed the deed of 1788. Under these circumstances,
Mrs. Stewart consulted her counsel, on the validity of the deed of
1793, representing all the previous facts (which had not been
adverted to, while general Stewart's estate was thought solvent)
and was advised to prove and record it. This was done, on the 27th
of February 1797, before any judgment had been obtained against
general Stewart; and the trustees, having surrendered and assigned
the trust estate, to Mr. Ingersoll in June 1797, an amicable
ejectment was instituted, for the purpose of settling the
conflicting claims of the widow and the creditors. The counsel for
Mrs. Stewart, (W. Tilghman, Lewis, Ingersoll, and Dallas)
contended, that marriage was in itself a valuable consideration, to
entitle the wife to a provision even out of her husband's estate,
independent of her own; that a voluntary settlement, after
marriage, by a husband, not indebted, is valid, with, or without, a
consideration on the part of the wife, against all subsequent
creditors; that an agreement for a settlement made in writing,
before, and in contemplation of, marriage, will always be carried
into effect; that a parol promise of a settlement, made before, and
in contemplation of, marriage, is equally valid in Pennsylvania,
although the law upon the subject has been altered in England, by
an act of parliament; and that even where there is no previous
agreement between the parties, a Court of Equity will never grant a
wife's personal property to her husband, until he has made an
adequate settlement upon her. As to the facts of the present case,
it was argued, 1st. That before the marriage, a contract was
entered into between Mr. M'Clenachan and general Stewart, bon a
fide, and upon a valuable consideration. 2d. That the settlement,
now controverted, was made in pursuance of that contract, from the
proceeds of the certificates, specifically traced, which
constituted the original consideration. 3d. That the performance of
the contract, was enforced by the principles of moral and social
obligation; and is in strict conformity to the direction, which a
Court of equity, or of law, would give to the appropriation of the
fund thus ascertained. 4th. That it was not essential to the
validity of the deed, that it should be proved and recorded, except
as against purchasers and judgment creditors, whose rights and
interests are not in question. The following authorities were
classed and cited by the counsel for Mrs. Stewart. 1 Atk. 15. 2
Vez. 18. 2 Eq. Abr. 51. H. 3. Cro. J. 454. 1 Vez. jun. 196. 1 Dall.
Rep. 193. 430. 1 Atk. 168. 2 Atk. 519, 520. Ambl. 121. 2 Atk. 448.
Ambl. 586. 1 Eq. Abr. 19. Bunb. 187. 2 P. Wms. 316. 1 Vent. 194.
Cro. J. 158. Cowp. 432. 2 Vern. 167. Prec. Ch. 208. 1 Fonbl. 88. 2
Atk. 419, 420. 1 P. Wms. 382. Prec. Ch. 548. Prec. Ch. 22. 1 Dall.
414. 2 P. Wms. 414. Ambl. 409. The counsel for the general
creditors, (E. Tilghman and Levy) urged the great inconvenience and
injustice of allowing a mere verbal conversation, of eighteen years
standing, to be the foundation of withdrawing from creditors, so
great a mass of the debtor's apparent property. The inception of
the alleged contract, is without writing, and without any witness;
but the father, who was a party to it. It is admitted, however,
that even a parol agreement, if fairly proved, and legally carried
into effect, must prevail in Pennsylvania. But transactions, honest
between the parties themselves, often become fraudulent, in
relation to others; and the purest executory bargains between
individuals, are liable to be defeated, upon general principles of
public policy, unless they are executed with strict legal publicity
and form. In the present instance, every thing conspires to beget
caution, in the admission of the widow's claim. The trust deed of
1788, makes no allusion to a subsisting contract, between general
Stewart and Mr. M'Clenachan; nor does it make an apportionment of
the fund among the widow and children. The subject of the trust was
a paper medium, as negotiable by delivery as a bank note; and
shifting as it did from new loan to federal stock, from stock to
money, on what rational ground (considering, particularly, that
general Stewart held similar certificates and similar stock in his
own right) can it be sustained, that the purchase of the real
estate, was made with the proceeds of the identical certificates
delivered on the marriage? But the settlement, being made of land,
it is a voluntary settlement, within the principles and the
provisions of the statutes; and it is not to be conceded, that a
verbal agreement to settle certificates, constitutes a valuable
consideration,
Page 4 U.S.
304, 308
for the settlement of lands, by the ostensible owner, having
become actually indebted. The deed is not only void, as it contains
a clause of revocation, and cannot be regarded as a legal
settlement; but it is fraudulent, as it remained in the possession
and power of the grantor. In the course of this argument, the
following authorities were cited: 2 Bulst. 226. 3 Co. 81. 1 Burr.
475. 2 Vern. 510. 1 Atk. 168. 2 Atk. 481. 1 Atk. 15. 2 Vez. 10, 11.
2 Vern. 510. 3 Co. 82. b. 2 Freem. 236. The COURT (composed of
M'KEAN, Chief Justice, and SHIPPEN and SMITH, Justices) delivered
their opinions, unanimously, in favour of the settlement; and the
jury found a verdict accordingly.
Footnotes
Footnote 1 The validity of
general Stewart's settlement was tried in December term 1799, in an
amicable ejectment brought by Blanchard's Lessee v. Ingersoll. The
facts proved upon the trial may be reduced to the following
case:
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