| Mich. | Jan 15, 1852
The complainant by his bill seeks to have the assignment set aside and declared void, as having been made to hinder, delay or defraud creditors.
Our statute of 1846, page 328, section 1, provides that “any conveyance or assignment, &c., made with the intent to hinder, delay or defraud creditors, &c., as against the person so hindered shall be declared void.” Section 5 provides that “ none of the provisions of this act shall be construed in any manner to. affect or impair the title of a purchaser for a valuable consideration unless it shall appear that he had previous notice of the fraudulent intent of his immediate grantor or of the fraud rendering void the title of such grantor.”
As between the grantors and the grantees the deed is good and passes the title; but it is denied that the indebtedness of the grantors to their creditors, or the nominal consideration of one dollar, or the covenants on the part of the grantees, either or all, constitute a valuable consideration. But such trust conveyances containing covenants on the part of the trustees or assignees, and stipulations beneficial to the creditors, are to be deemed and taken as founded upon a valuable consideration. The assignee therefore, is in legal contemplation a purchaser for a valuable consideration, and becomes vested with the legal estate in the property assigned. (2 Johns. Ch. Rep., 189; 10 Pick, 413; 2 Kent's Com., 533; Roberts on Fraud. Conv., 434; Gorham
It must be shown then, by the complainant, that the parties to the deed, entered into it as a device for the purpose of hindering, delaying or defrauding the creditors of the grantors; that it was not intended by the parties to it, and especially the assignors, to carry its provisions into effect, bona fide, but that it was intended as a means to keep the property from the creditors, or this creditor in an especial manner, and from motives'of malice or guile, or thattfre deed of assignment contains provisions or trusts which are prohibited by law, on account of which, it is to be deemed fraudulent and void. The actual secret intent of the grantor, however had, cannot affect a bona fide purchaser, without notice. (Astor vs. Wells, 4 Pet. Cond. Rep., 513; Wheaton vs. Sexton, 4 Pet. Cond. Rep., 519; 11 Pick., 50; 1 Johns. Rep., 30; 5 Pet. Cond. Rep., 344; 6 Ib., 223; Gorham vs. Reeves, 1 Smith’s Indiana Rep., 239.)
As to the intent, the Editor of the American Leading Cases, in a note to the case of Salmon vs Bennell, 1 Vol., page 54, says these attempts to reduce fraud in all cases, to a matter of actual intent, is not only opposed to all prpiciple and authority — to common justice and to common sense, but has been frustrated by the very forms and constitution of the Courts, and cannot be "successful until the respective functions of the judge and jury are changed; for the Court obviously possesses the same control over the subject in the form of a direction to the jury, as to the force of presumptions on a question of fraudulent intenfr as they formerly exercised through the medium of a peculiar definition of fraud; and to prevent irregularity and injustice this control must be exercised, and this practice is established by Vance vs. Philips, (6 Hill, 433.) In Chancery, however, there used to be no practical difference between the present and the former rule or law. This Court, sitting in Chancery, exercises the functions of judge and jury at law. We will therefore proceed in the first place, to an examination of the evidence, independent of that which is contained in the deed.
The fact that the assignors and assignees were informed of the intenlion of the complainant to sue out a writ of attachment, the next day,
It is said, assignments to trustees for the benefit of creditors, are an invention of comparatively modern origin. Courts of law said the principle of such assignments trenched upon the fundamental maxim of the common law, and that it was apparently repugnant to the very wording of the statute of frauds; but the rule of the Chancery Courts,, that equality is equity, prevailed over the common law principle, and the Courts permitted the debtor to arrest the diligence of one creditor, in order to provide for the interest of all. (Tracy, Senator, 11 Wend., 216.)
Acting upon this principle, it has come to be an' established rule of law in this country and in England, which is sustained by a train of decisions in the Courts of both countries, that á debtor in failing circumstances, may, in the absence of any existing lien, make a conveyance or assignment of the whole of his property for the benefit of a single creditor, in exclusion of all others, or he may distribute it in unequal proportions, either among the whole or a part of his creditors. (4 Mason’s Rep., 210; 15 Johns. Rep., 583; 5 Cow., 547; Nevin vs. Nillsmore, 8 T. Rep., 521; Estwick vs. Caillard, 5 T. R., 402; 4 East, 1; Small vs. Oadly, 2 Pr. Williams; Phoenix vs. assignee of Ingraham, 5 Johns. Rep., 412, '26, '27; 3 Ib., 83; 5 Ib., 544; 2 Ib., 307; Nicoll vs. Mumford, 4 Johns. Chy. Rep., 526, ’7; 1 Binney, 502.)
In this State, every man has the jus disponendi of his property, unless it is subject to either an equitable or legal lion. It makes no-difference that he is in failing circumstances — that suits are threatened' or are pending — that judgments exist against him, nor that executions against him are in the hands of an officer and a levy is momentarily expected, but not made. Under any or all of those contingencies, he has the full and absolute right to dispose of his property. He may pay his debts with it. He may exhaust all his property in paying one creditor, leaving another unpaid, and lastly, he may assign his property to trustees for the benefit of creditors; provided always, that ho does it
If the effect of a conveyance be to hinder, delay or obstruct creditors, it is not therefore void. The statute was not designed to restrict the right of a debtor to pay his creditors, whom moral duty and a sense of justice may dictate the propriety of paying or securing, or from doing equal and exact justice to all. “ Every conveyance of any part of the debtor’s property may have the effect in a greater or less degree to •hinder and delay creditors; as it withdraws from their legal grasp the means, pro tanto, of coercing their debtor.” To render it fraudulent, it must be done with the intent to hinder, delay or defraud, but if made with no such intent, but with» honest motives and with the higher or nobler intent and purpose of paying all equally or of providing for •those who are the most meritorious, it will be sustained.
In the case of Pickstock vs. Lyster, (3 Maule & Selwyn, 371,) Lord Ellenborough says, in speaking of assignments made with a view to an equal distribution of the debtor’s property, that it was to be referred to an act of duty rather than of fraud, when no purpose of fraud is proved. The act arises out of a discharge of the moral duties attached to the character of the debtor to make the fund available for the whole body of the creditors. Bailey, Justice, says this conveyance so far from being fraudulent, was the most honest act the party could do. Rot having sufficient to pay all his debts, he proposes to distribute his property in liquidation of them. In Eastwick vs. Caillard, Lord Kenyon said “ it was neither illegal nor immoral to prefer one creditor to another.”
The object of the statute was not to prevent such conveyances as might operate to hinder or delay creditors, but only such assignments as were in their inception and intention fraudulent and void. It is the fraudulent intention, the mala mens, with which the conveyance is made that constitutes the fraud against which the denunciations of the statute are directed.
We have made this somewhat extended statement of the history of assignments and the principles upon which the decisions of Courts in ■this class of cases aré founded, for the purpose of ascertaining our true ’
It is a remarkable fact in this case, that the assignors, who are charged with having violated the law, and who were made parties to the bill by-a personal service of the subpoena, should have suffered it to be taheñas confessed against them. It is not often that persons who have made assignments, allow such charges to be placed upon the record without an explicit denial of them, ■ Still less frequent is it, that the grantors in such deeds, confess their iniquity to then creditors, whose legal remedy has been delayed or defeated by it, (as is charged in this bill.) It indicates that the assignors have changed sides, either in consequence of some dissatisfaction with the assignees, or their creditors. The personal property it would seem, was sold immediately after the assignment was made — when the executions were issued in January, it had all been disposed of, and the real estate had been advertised for sale. There seemed to be hut little chance for them to derive any benefit from the assignment, as the assignees werq rapidly closing up the trust. This bill was filed in February following. The admissions of the assignors, by their pro confesso, were made in legal contemplation, sometime in March or April. In the meantime, the complainant or his solicitor, had seen and conversed with the assignors, when they admitted (as the bill charges) that the assigment was made to hinder, delay, &c. The assignors were sworn as witnesses in the case, in behalf of the complainant.
It would have been competent for the complainant to compel the witnesses to disclose every fact or circumstance tending to show the intent by which the parties in the assignment were governed; it would naturally be expected that the complainant would have exercised his ingenuity in compelling a full development of the plans of both parties in all their details. The fact that they asked so few questions and those of a character so general, is perhaps evidence that they did not know or suspect any other matter or fact not disclosed. The assignors may have been willing that the bill should have been taken pro confesso against them, and at the same time unwilling to confirm
The fact that the assignment was made on Sunday, was treated by the counsel of complainant in his argument, as an indication of a fraudulent intent. It certainly indicates that the assignors were in a hurry to finish the' assignment before an attachment could be sued out. It was not executed on Sunday, and not until early the next morning. It _ was expected the attachment would be sued out and levied in the mom'ing of the next day.
It is not charged that the transaction was veiled in secrecy, or that it was not generally known the next day. If complainant had intended to take out an attachment the next day, why did he not do so ? Most probably he knew the assignment had been made, for the assignees took immediate and open possession of the property. The fact that they allowed Caleb Loud to remain on the farm up to the time the bill was filed, and during a period when houses and farms are not usually rented, adds nothing to the force of the proof, as the assignees in their answer, say they suffered him to remain until they could find a purchaser for the farm, which was advertised for sale. They took the wheat crop off from the farm, and but a very short time elapsed before they wore enjoined. They say they intended to collect the fair rent of the farm, and there was no understanding that Caleb Loud should occupy it free of rent. Under such circumstances it can hardly be said, that a failure on the part of the assignees, to do that which might have savored of rigor towards the assignors, should be urged as evidence of a secret trust in his behalf. The fact that complainant’s suits at law, then pending, were continued from time to time till early in January, some three
That the Jackson county creditors were preferred, appears upon the face of the assignment; but the reason for this being done is not shown. The fraudulent motive assigned in the bill for this act is fully denied by the assignees, so far as they had any knowledge on. the subject. This charge is urged in connection with the fact that complainant is placed in the third class of creditors, and that he is expressly excepted from the second class. This exception may have been made, as the most convenient way of designating those who were to be included in the second class, as those who were excepted were much less numerous than those that were included in that class.
The principle upon which Courts are supposed to have acted, in sanctioning assignments for the benefit of creditors, is, that it enables a debtor to distribute his goods equally, among them; this approaches the nearest to the mode of distribution which prevails under bankrupt laws. But it is singular, as remarked by Senator Tracy in the case of Grover vs. Wakeman, (11 Wend., 217,) that where the right of an insolvent to lock up his property from the legal pursuit of one creditor by a deed
Again, it is tu-ged as an objection to the deed of assignment, that no time is limited by it for closing the trust. The provision in the deed is, that “ the assignees shall forthwith take possession, <fec., of the property, and within such reasonable time as to them shall seem meet, convert it into money, and pay, &c.” This provision, wMlst it does not restrict
It is objected to the validity of the assignment that no schedule was annexed to the deed, at the time of its execution. We have seen that this matter is fully explained by the answer and proof. Except in connection with other proofs or badges of fraud, this objection has never been held to be sufficient, and it is does not constitute a link in the chain of evidence, where it is as folly explained as in this ease. The property vested in the assignees at the delivery of the deed, whether the schedules were perfected then or not. (1 Sandford Superior C. R., 4; 2 Ed. Ch. R., 264; 6 Mass., 339; 4 Wash. C. C. R., 232; 1 Binney, 523; 15 Conn., 132; 2 Paige, 311.) If the assignors had failed to make the schedules, a Court of Chancery, on a bill of discovejy, would have compelled them to disclose and deliver up the property.
It is objected also, that the assignors direct that the balance remaining, if any there should be after all the debts were paid, should be paid over to the assignors. This does not raise a suspicion of fraud in this case. A case might exist in which it would have an important bearing, as for instance, if an individual creditor of a firm should complain that the property of a partnership which was considerable was assigned to pay a small amount of debts, and was tied up in the hands of a trustee until all claims against the firm were paid. This would postpone the individual creditors. (See 9 Paige, 302.) Hence the individual creditors are in the first class. After all the debts are paid there would be a resulting trust, and a Court of .Chancery would compel the trustees to account and pay over to the assignors. (9 Paige, 302; 8 Watts & Sergeant, 304; 11 Wend., 235; 7 Cow., 735; 5 Watts & Sergeant, Dana vs. U. S. Bank,) where this subject is much discuesed.
Another ground of objection is that the assignors reserved from the general mass of the property, such of it as was by law exempt from levy and sale on execution. This question has been raised under the statute of 13 Elizabeth. It is the settled law in England, that to make a voluntary conveyance void as to creditors, it must embrace property
As to the property which was for the'time being withheld, and which was allowed to the assignors by the assignees, as being exempt by law, we say, if the property was not exempt, it at the least was assigned and vested in the trustees. The assignees must settle that question with the assignors. The creditors will hold them responsible, if the property was not exempt; it was not done secretly — the parties attempted to act under the law.
It is also objected that the private creditors of the individual members of the firm are included in the assignment, when all the property assigned is alleged to have been the avails of the partnership business, and to have belonged to the firm. The assignees say in their answer, that they do not know that there are any private debts of either of the parties. The assignors in their evidence, state that they owed some small debts; but judging from their statements, the amount was very inconsiderable. The answer of the assignees, and the evidence of the witnesses, establish the fact that a considerable portion of the real estate . assigned, including town lots, houses, and a farm, belonged to the indiividual members of the firm; the witnesses say it was bought with the avails of the partnership business, but it was then separate, private property. The fact that those lots were purchased with funds derived from the partnership, does not make it partnership property. Partners frequently draw from the stock of the firm their several 'portions of the profits, and make purchases for their own private use, and if they should assign it to pay the debts of the firm, the private creditors might complain, and ask the aid of a Court of Chancery to appropriate it to the payment of their debts. In this case the private real estate was not used by or devoted to the use of the firm. Of the land, the parties
We have thus examined with some degree of minuteness all the evidence in the case, as well that which is furnished'by the depositions of the witnesses and the answers of the assignees, as the provisions contained in the deed of assignment itself, and we have been unable to find those evidences of fraudulent intent on the part of the assignors, which, in any of the cases we have read, have been held to be conclusive or strong evidence of fraud.
This Court held in the case of Buck vs. Sherman, (2 Doug. Mich. Rep., 176,) that fraud will not be presumed upon slight circumstances, the burthen of proving it will rest upon the party charging it. The Chief Justice, in delivering the opinion of the Court, said: “The proof should be so clear and conclusive as to leave no rational doubt upon the mind.” It is said in 8 Cowen’s Rep., by Woodworth, Justice, that fraud may be presumed in equity from circumstances, though in law it cannot. (1 Dessarn, 309.) Other Courts have held with ours that fraud must be clearly and distinctly made out, and cannot be inferred from circumstances of an equivocal tendency. (23 Maine Rep., 46; 2 H. & J., 414.) It is not to be lighly presumed after a denial in the
We cannot see anything in these facts which distinguishes them from those stated in a large v proportion of the cases we have cited. The complainant was about to sue out a writ of attachment by which he would seize upon sufficient property to pay his debt; no one could (as under former statutes) participate with him in the benefits to result from such a proceeding. He would have acquired the same preference over other creditors, as if he had levied an execution upon the debtor’s property. This proceeding would have resulted in applying a large portion of the assignors’ property to the payment of a single debt, and would have defeated all just preferences, which the law seems to treat as just.
Mr. Tracy in the ease which we have cited from 11 Wendell, says: “ Either principle, that of assignment or that of preference, standing by itself, might very well be questioned; but brought together they form an unnatural coalition, from which little that is salutary or honest can be anticipated.” Granting that there are great objections to preferences, and that this power is very liable to be abused, and prostituted to dishonest purposes, still it is engrafted into our law, and the power so far as we know has been as fairly exercised in this case, as in any of the cases we have cited. There does seem to be something a little repugnant to our sense of right and fairness in the fact that the man whose legal diligence was thwarted, should be placed in the third class of creditors, and may possibly never receive any dividends, but we have no proof as to the merits of his claim, which should lead us to infer that a fraud must have been intended, and this Court sitting as a Court of Chancery, are not to assume that because the complainant was the most diligent, he was therefore the most meritorious, or that he had any superior equity over any of the other creditors.
In the general aspect of the case, it will be noticed that the assignors did not part with all their property; that they reserved what was by law exempt from levy and sale on execution. The equitable' rule of which we have spoken, appears not to be satisfied with a surrender of a part of a debtors goods; it seems to exact the whole. The fact that the debtors in this case have, to the extent of the exemption, made their own terms and sought the protection of the law, and thus departed from that generous and honorable standard which the equitable rule commends, would appear when it is first presented to the mind to detract from'the supposed fairness of the assignment. But we have seen that when properly and fully considered it will not appear to be objectionable. The debtors have saved nothing which the creditors, under the most rigorous enforcement of the law could have obtained or claimed; and shall we say that because they have reserved to themselves what the law could not have exacted or taken from them, that therefore they shall not have what the law would hare allowed to them ?
This assignment has been attacked at so many points, unless we bear in mind that so far as relates to the provisions in the deed, none of them are vulnerable,' we may be inrpressed with the idea that the attack has been in some way or another successful, without being able to point out a single breach. Certain it is, no impression has been made upon any of the clauses of the deed. As to the rest of the case it will be found that the charges of fraud so often repeated, have not been supported by the proof, which has failed to afford any definite, or at least conclusive indications of fraud.
Taking a general view of the facts exhibited in the record, and looking at them as a whole, we are constrained to remark that we can per
' The judgment of this Court is, that the decree of the Circuit Court be reversed, with costs to the defendants of this Court and of the Circuit Court, and it is ordered that this case he remitted to the Circuit Court for the county of Jackson.
Johnson, J,, being a party, did not participate in the decision of this cause.