33 N.J. Eq. 287 | N.J. | 1880
The opinion of the court was delivered by
The complainant is the assignee of John C. Doremus and William L. Doremus. The bill charges that on the 14th of January, 1878, the said John C. Doremus and William L. Dore-mus, who were partners, executed and delivered to the complain
The bill further charges that the said John C. Doremus, on the 16th of December, 1877, was seized of two tracts of land situate in the township of Montclair, valued at $7,000 above encumbrances, and that on that day he conveyed the said lands to his daughter, Jane A. Kingon, for a pretended consideration; that at the time of the said conveyance the said firm was hope
Concisely stated, the case is this: A conveyance of property by an insolvent debtor, in fraud of his creditors; k subsequent assign-' ment by the debtor for the benefit of creditors, pursuant to the assignment act, under which creditors who were hindered, delayed and defrauded by the conveyance, have presented their claims for allowance, and the property in the hands of the assignee insufficient to pay the claims of creditors in full, without resorting to the property previously conveyed away by the debtor. The question on the demurrer is whether, under such circumstances, the assignee has a standing in court to set aside the fraudulent conveyance, and reach the property conveyed away by the debtor
No rule of law is better settled than that a conveyance in fraud of creditors is good as between the parties to it. The statute of 13 Eliz, c. 5, which makes void grants and conveyances contrived in fraud, with intent to hinder, delay, or defraud creditors, is in express terms limited to those persons whose actions, debts, damages or demands are or may be hindered or defeated by such covinous or fraudulent devices and practices. Rev. 447 § 12. It is equally clear that such conveyances are also unassailable by those who hold a derivative title from the fraudulent grantor, and, in virtue of their title, become simply representatives of his interests. An heir or devisee of the fraudulent grantor is exclusively the representative of the latter, and succeeds only to his rights. In no sense can the heir or devisee be considered as representing those whose interests are intended to be defrauded; aud on the plain construction of the statute he is disabled from taking advantage of its provisions. The executor or administrator of a solvent estate stands in the same position. As such, he is also the representative of the fraudulent grantor, and has no power to recall a fraudulent grant of chattels for the benefit of the grantor’s estate. The same disability will rest upon an assignee, who, in virtue of the instrument of transfer, becomes merely the representative of his grantor, and succeeds only to the rights of the latter.
The material question for present consideration is, whether those-who hold by a title derived from the grantor, but who, in virtue of that title, become the representatives of the creditors of
The leading case on this subject is Hawes v. Leader, Cro. Jac. 270. In that case the defendant was the administrator of one Thomas Cookson. The plaintiff averred, in his declaration, that the said Cookson, for £20 paid by the plaintiff, granted all his goods mentioned in a schedule, and covenanted that he, his administrators &c., should safely keep and quietly deliver them to the plaintiff on demand, and bound himself in £40 for the performance of that covenant. Cookson died, and the plaintiff demanded the goods of the defendant, who had become administrator, and being refused, brought his action. The defendant pleaded the statute of 13 Eliz. c. 5, and further said that..the intestate, at the time of the grant, was indebted to divers persons in several sums (naming both the persons and the sums), and that the deed of gift was made of fraud and covin betwixt Cook-son and the plaintiff to deceive his creditors named; that Cook-son used and occupied all the goods during his life, and that administration, after his death, was committed to the defendant. The plaintiff demurred, and assigned as grounds of demurrer, (1) that it was not averred that the debts due were unpaid to the creditors named; (2) that the plea did not show that the said debts were due by specialty, for an administrator was not liable to debts if they be not upon specialty; (3) that the goods were liable to the creditors in the plaintiff’s hands, as an executor de son tori, if the deed of gift be fraudulent; (4) that creditors might never sue for their debts, and then the defendant might thereby justify the detainer of the goods forever, and (5) that the defendant was not such a person as is enabled by the statute to plead that plea, for the statute makes the deed void as against creditors, but not against the party himself, his executor or administrator. On the argument of the demurrer it was adjudged for the plaintiff.
“ Wherever a man makes a fraudulent gift of his goods and chattels, and dies indebted, the rule, upon the statute of Eliz. e. 5, has always been to construe the gift as utterly void against all his creditors, and the debtor to have died in Ml possession with respect to their claims, so that the effects are just as much assets in the hands of the personal representatives, as to creditors, as if no such attempt to alien them had been made.” Roberta on Fraud. Con. 592.
In Shears v. Rogers and Bethel v. Stanhope, the question arose under pleas of plene administravit. The issue on these pleas admitted that the goods and chattels fraudulently conveyed by the deceased were needed to pay debts. In this respect those cases are distinguishable from Hawes v. Leader. In Shears v. Rogers, the lease had been assigned by the testator to the defendant, in trust for the benefit of the testator during his life, and after his death for the benefit of one of the testator’s daughters-in-law. The defendant, after probate of the will, and before he had notice of the plaintiff’s debt, delivered the deed of assignment to the husband of the daughter-in-law. He did not deliver the key of the leasehold premises, but the premises were let by the husband to a tenant. In Bethel v. Stanhope, the testator made a gift of his goods to his daughter by covin, to defraud his creditors, and died. The defendant intermeddled with the goods, and afterwards the daughter, by this gift, took possession of the goods, and after that the administration was committed to the defendant as executor. These cases affirm the power of the executor, acting in behalf of creditors, under some circumstances, to avoid conveyances by a testator in fraud of his creditors. In both cases the goods so conveyed away were held to be assets in the hands of the executor — a result which is not supposable if the executor had no power to retain or recover them, in avoidance of the conveyance of the testator, by setting up the fact that they were granted away by the testator in fraud of his creditors.
In a court of law, in ordinary cases, by proof at the trial or by the production of a decree of the orphans court, and always in a court of equity, the condition of the estate may be ascertained, and, if need be, a classification arrived at of the creditors who are and who are not entitled to the benefit of the statute; and on the settlement of the estate, the assets may be so marshaled and administered, by withholding from heirs, legatees and next of kin all advantages arising from the avoidance of the acts of the decedent, as to give effect to the policy of the statute, which denies to such representatives the power to avail themselves of its provisions for setting aside the fraudulent grants and conveyances of the deceased. The cases on this head in the courts of our sister states are not in harmony; but I think, on principle and good policy, the executor or administrator may be considered as the representative of creditors for the purpose of bringing suits to recover property fraudulently conveyed away by the deceased, when such property appears to be required for the payment of his debts, and that such property, when recovered, will be treated as assets, in the hands of the executor or administrator, only for the purpose of paying debts. Where the property so illegally disposed of consists of lands on which debts become liens by statute, and which may be subjected to the payment of debts by a creditor filing a bill in behalf of himself and other creditors (Haston v. Castner, 4 Stew. Eq. 697), the executor or administrator, before he can put himself in position to give him a standing for the purpose of reaching such property, must obtain an order of the proper court for the sale of lands for the payment of. debts. Kingsbury v. Wild, 3 N. H. 30; Drinkwater v. Drinkwater, 4 Mass. 354.
Cases more directly in point with the case in hand are those decided under the insolvent acts of 1 Geo. IV, c. 119, and 7
“I think that the assignee of an insolvent debtor represents the creditors for all purposes, and if any fraud exists in a transaction to which the insolvent was a party, that the assignee may take advantage of it. A deed which is void as against creditors is void also as against those who represent creditors.”
Alderson, B., also declared that “ if a deed be void as against creditors, the assignee who represents creditors may avoid it.” In Norcutt v. Dodd, 1 Cr. & Ph. 100, a bill by an assignee in insolvency was sustained, the object of which was to set aside a voluntary alienation of property of the debtor, who, at the time of such alienation, was insolvent. In the later case of Holmes v. Penney, 3 K.& J. 90, the bill was filed by the plaintiff as a creditor and also as an assignee in insolvency, to impeach a settlement by a debtor in fraud of creditors; and in considering the question of parties, Vice-Chancellor Wood said:
“I have no doubt of the right of the assignee in insolvency to sue in this case. In Doe, Grimsby v. Ball, Baron Parke and the present lord chancellor decided that an assignee in insolvency might properly represent all the creditors in proceedings to set aside an instrument which any of the creditors might have instituted.”
In the two cases first cited, the assignment was made under the act of 1 Geo. IV, c. 119 ; in the other two, under the act of 7 Geo. IV, c. 57. In none of the cases was the decision placed on any language in the statute specially empowering the assignee to avoid the fraudulent conveyances of the assignor. In fact,
A trustee or assignee in insolvency has been considered as the representative of the creditors of the debtor, and, as such, entitled to avoidj in the interests of creditors, his grants and conveyances made in fraud of creditors. Swift v. Thompson, 9 Conn. 63; Palmer v. Thayer, 28 Conn. 237; Shipman v. Ætna Ins. Co., 29 Id. 245; Moncure v. Harrison, 15 Pa. St. 385.
In Bayard v. Hoffman, 4 Johns. Ch. 450, Chancellor Kent decided that an assignment of all the debtor’s estate, real and personal, in trust for all his creditors, included stock which the debtor had before that voluntarily assigned, to the injury of his creditors, and that the assignee might file a bill to set aside the fraudulent transfer for the benefit of the creditors. That case has been considered as overruled by the courts of New York, in Storm v. Davenport, 1 Sandf. Ch. 135, and Brownell v. Curtis, 10 Paige 210; but its weight as the opinion of an eminent equity judge is not impaired by the overruling cases. Storm v. Davenport was rested on Mackie v. Cairns, 5 Cow. 547 — a case which bore upon the question very remotely, if at all.; and in Brownell v. Curtis, Chancellor Walworth founds his opinion chiefly on Osborne v. Moss, 7 Johns. 161, which was an action at law against an administrator, and in its circumstances identical with Hawes v. Leader, already commented on.
An assignment under the act of the legislature of this state differs in most important particulars from an assignment' made by a debtor at common law for the benefit of his creditors. Its
A comparison of the statute with the English insolvent acts will disclose the similarity of these several acts in all respects material to this investigation. Under each system the assignee derives his title under an assignment which is the voluntary act of the debtor. In the one instance, he is induced to make the assignment by the expectation of relief from imprisonment; in the othei’, by the hope of obtaining a full discharge from his debts. The legal effect of the language of the assignment is the same in both instances, except that the position of the debtor, in the one case, raises a presumption that he is at that time unable to pay his debts in full, and that part must be made the subject of proof aliunde in the other, there is nothing in the situation of the assignor, or in the form of the assignment, that would make the assignee the representative of creditors in one instance and not in the other. In Moore v. Bonnell, 2 Vr. 90, 95, the chief-justice said:
“It is difficult to perceive how an assignment, voluntarily made by a debtor for the benefit of his creditor, differs in substance from one executed nnder the compulsion of an insolvent or bankrupt law. * * * There is to my mind scarcely a shade of difference between the coercion of circumstances impelling a failing debtor to wind up his affairs, and that liquidation brought about by a creditor taking the initiative and proceeding against him.”
Regarding the substantial nature of the transaction, the doctrine
Much of the argument against the power of the assignee to prosecute suits in that behalf for that purpose, was based on the thirteenth and twenty-first sections of the act. I am not disposed to give as much effect to these sections as was given to them in the court below. The thirteenth section gives the assignee the same power to dispose of the estate, real and personal, assigned, as the debtor had at the time of the assignment, with power to settle and compound with any person concerning the same, to redeem mortgages and conditional contracts, and generally to do whatsoever the debtor might lawfully do in the premises. It further authorizes the assignee to sue for and recover in his own name everything belonging or appertaining to the said estate, real and personal, of the said debtor — language which, in view of the purposes of the act, may legitimately be construed to embrace all property which may be made available for the payment of debts. Considering that the assignment creates a trust for the benefit of all the creditors of the assignor, and that the legislative purpose was to secure an equal and just division of the estate of the debtor among his creditors, a construction less comprehensive will • defeat the legislative purpose. In virtue of the trust so created the assignee becomes the representative of and actor for creditors, and his powers should be so construed as to enable him to carry into full effect the purpose which the statute designed. In the English insolvent acts, under which assignees are allowed to avoid the fraudulent grants and conveyances of the debtor, the power of the assignee to sue in his own name is granted “ for the recovery, obtaining and enforcing any estate, effects or rights of such prisoner ” — language, in legal effect, identical with 'that contained in the thirteenth section of our assignment act. In Garretson v. Brown, 2 Dutch. 425, Justice Potts construed this section as enabling the assignee to sue for property fraudulently
The twenty-first section creates a bar of subsequent suits as against creditors who have come in under the assignment, liable to be removed only by proof of fraud in the debtor “with respect to the said assignment, or in concealing his estate, real or personal, whether in possession, held in trust, or otherwise.” This language manifestly has reference to the conduct of the debtor in connection with his assignment, and has no relevancy to prior conveyances in fraud of creditors, unless such property might be made available to creditors under the assignment; for it is not to be supposed that the legislature would visit on the debtor the penalty of a forfeiture of his discharge for not disclosing to his assignee property which the assignee had no capacity to take under the assignment. The paragraph in this section which saves the rights of creditors who do not choose to exhibit their claims, as to the property, real or personal, not assigned, carries with it an implication that there might be property which would not pass under the assignment; but I do not think that this expression should be allowed to overcome the unmistakable evidence on the face of the statute, that the assignment should embrace all the property of the debtor, and that creditors should be placed on the footing of perfect equality in the division of the debtor’s property, or that it was intended to give creditors who stayed out an advantage over those who came in under the assignment.
Nor will any embarrassment be experienced in the fact that the property which has fraudulently been conveyed away may be in excess of what is required for the payment of debts. As is indicated in the opinion of this court in Miller v. Mackenzie, 2 Stew. Eq. 291, such fraudulent conveyances will be set aside no further .than is necessary for the satisfaction of the demands of creditors, and the surplus, if there be any, will not be restored to the fraudulent debtor, but will be returned to the grantee to whom the fraudulent conveyance was made.
In Garretson v. Brown, Justice Potts, in delivering the opinion of the court, held that the assignee might sue for and
Decree unanimously reversed.