Richardson v. Marqueze

59 Miss. 80 | Miss. | 1881

Chalmeks, C. J.,

delivered the opinion of the court.

On the 8th of March, 1881, T. E. Richardson, an insolvent merchant in the city of Jackson, made an assignment of all his property of every character and description, except so much of it as was by law exempt from execution, for the benefit of his creditors ; dividing the creditors into four classes, and directing that these classes should be paid in the order of their numerical priority; thus giving preferences among them, the effect of which might be, and probably was, that those belonging to the fourth and most numerous class would receive nothing. The assignee took possession, and was proceeding to administer the trust, when he was intercepted by the filing of this bill by creditors belonging to the fourth and least favored class. The bill assails the assignment, as being fraudulent on its face, and prays that it may be so declared, and that the complainants may be permitted to subject the propertj^ conveyed to the payment of their demands. Some time after the filing of the bill an application was made for the removal of the assignee named in the instrument, and for the appointment of a receiver. This motion was based both upon the alleged fraudulent character of the deed of assignment, and upon alleged misconduct on the part of the assignee in the conduct of the business. It was supported by affidavits showing what that conduct had been, and, upon the hearing, the Chancellor sustained the motion, removed the assignee, and appointed a receiver. From this order the assignee and preferred creditors appeal. Three features in the assignment are mainly relied upon as demonstrating its fraudulent character, and to these we will in turn address ourselves ; but, before doing so, it may be well to consider somewhat the character of these conveyances. They are materially different from mortgages and trust deeds, to which in form they assimilate. Mortgages are intended to provide security for a debt or debts, the immediate payment of which, so far from being then contemplated, is by the instrument itself declared to be postponed to some future day. An assignment, on the contrary, is a quasi payment, or at least a provision for payment. Neither instrument can be allowed to embody in itself stipulations inconsistent with its professed object; but, as the ends contemplated are materially different, that which would condemn one may be entirely admissible in the other. The very delay contemplated by the mortgage, and frequently constituting the consideration for its execution, might in the other be fatal to its validity. As we have remarked, the underlying idea of an assignment for the benefit of creditors is payment; and the more strictly the provisions of the conveyance are confined to effecting this end, the more perfectly it effects the object of its execution. But immediate and unconditional payment is not essential, or commonly possible. If it was, there would be no necessity for making the instrument. Although therefore the necessary effect of the conveyance may be to produce delay in the collection of the demands of some of the creditors, this will not of itself avoid the deed. A conveyance made for the purpose of hindering or delaying creditors is denounced by the Statute of Frauds; but, although its necessary effect may be to produce more or less of delay, this will not render it void, if the delay was not the moving cause of the conveyance, but merely one of its incidental consequences. When an insolvent person proposes to assign his property for the purpose of providing a fund for the liquidation of his debts, while he may to a certain extent prescribe the conditions on which the conveyance is made, yet he must bear ever in mind the professed object of the transaction, and be careful to insert no stipulations which thwart the scheme. By his act he professes to divest himself of the property, and assign it through a trustee to those to whom he is indebted. He must not therefore impress his own will upon it to an extent inconsistent with its application within a reasonable time to the demands for which he professes to provide, nor impose conditions upon it, which are manifestly intended not for the benefit of the creditors, but for his own. The delay, if anjr, must be such as will make the fund more productive for their benefit rather than for his own. While anything that tends to increase the fund must necessarily be both for his benefit and for theirs, the test of bona fides must be whether the object was his advantage or theirs. Whatever may be the law in other States, there is in this State no difference whatever in the law applicable to an assignment giving preferences, and one which provides for a pro rata distribution of property among all creditors. No principle is better settled in this State than that an insolvent debtor may make preferences among his creditors, even to the extent of transferring all his property to one, leaving all others unprovided for. If he may do this by an instrument which takes the shape of a deed in fee, certainly he can embody it in one which is in form an assignment to a trustee for the benefit of creditors. The principle cannot be altered by a change in the form that the conveyance assumes. We had occasion in the recent case of Eldridge v. Phillipson, 58 Miss. 270, to review our decisions on this subject, and to show to what extent the doctrine had been carried. It is true that it was said in Arthur v. Commercial Bank, 9 S. & M. 394, 433, that an assignment with preferences must contain no condition, direct or indirect, controlling its application. “ All over and above what is necessary for the devotion of the property to the payment of the debts cometh of evil.” It was further said in the same case that “ a preference given by a general assignment does not therefore of necessity invalidate the deed, yet all such preferences are liable to objection, and must be watched with jealousy. Though they may create suspicion, they are not in themselves fraudulent.” These criticisms must, in view of the well-settled doctrine of this court that preferences are always allowable and sometimes laudable, be construed as referring to matters of fact rather than to invidious distinctions of law. It is doubtless true that a fraudulent debtor would be more apt to make a preferential assignment than one which distributed his property pro rata. The preferred creditor would be more willing to cloak the assets for his benefit. It would be the more easy to insert fictitious debts, or to magnify in favor of wife or children or intimate friends the amount of the debts really due them, or in many ways to procure secret and unlawful benefits for the maker of the instrument; and hence, as matter of fact, it is undoubtedly true that preferential assignments should be scrutinized more carefully and jealously than those making pro rata distribution. But this is a jealousy and a scrutiny of the facts, and not of the law applicable to the instruments. If they successfully bear the most rigid and searching investigation of the facts, and are found to be free from all taint of actual fraud, they are To be judged by the same principles of law, and are entitled to the same consideration and favor, as those without preferences. In short, preferential assignments with us can only be condemned as fraudulent in law for defects which would warrant a condemnation of those which provide for the payment of all debts alike. The cardinal tests to be applied to either class of instruments may, in a general way, be reduced to two, to wit: first, has any benefit been reserved to the grantor; and, second, does the conveyance contain stipulations inconsistent with its professed object, and which render its execution in a reasonable time impossible or difficult? Most valid objections to either class of assignments are usually resolvable into one of these heads, and instruments which are found free from these will usually be held unobjectionable.

As before remarked, there are three principal objections urged against the assignment in this case, as showing upon its face that it is fraudulent in law : first, because the grantor excepts out of his property so much as is by law exempt from execution, and reserves the same to himself; second, because by the terms of the instrument the assignee is authorized to sell the property conveyed either for cash or on credit, as he may deem most beneficial for the creditors ; third, because, as is alleged, the assignee is authorized to carry on the mercantile business in which the grantor was engaged, for the benefit of the creditors, in the same way as the grantor was himself carrying it on before the execution of the deed of assignment.

First, as to the reservation of the exempt property. In this conveyance, after a specific and full enumeration of all the grantor’s property, consisting of all the goods, wares, and merchandise contained in two storehouses in the city of Jackson, together with all the notes, accounts, and assets belonging thereto, some real estate particularly described, and ten head of mules, there is a general grant of all property belonging to the grantor in these words: “ Every and all right, title, claim, and interest in any and all property and valuables of every sort, kind, or description, save and except such as I have a legal right to retain and hold under the exemption laws of this State.” It is insisted that this reservation or exception of the exempt property out of the property assigned renders the deed void on its face. If this position had not received the sanction of a court of high character, and was not sustained by the opinion of a judge of excellent repute, it would be difficult for us to imagine how a debtor could be supposed to perpetrate a fraud on creditors by reserving to himself that which the law under all circumstances reserves to him, and which it prohibits its officers or his creditors from interfering with or molesting in any way, except where he has voluntarily incumbered or conveyed it. But the Supreme Court of Tennessee, in the case of Sugg v. Tillman, 2 Swan, 208, in an opinion delivered by Judge Caruthers, held that an assignment for creditors was rendered fraudulent and void because of the insertion in it of a provision in these words, “reserving to myself, however, out of the aforesaid stock, farming utensils, provender, provisions, household and kitchen furniture (as all of my property of that description, as well as every other description, is intended to be embraced by this conveyance), so much as I am by law allowed to retain free from execution.” The opinion was placed upon the twofold ground that it was an attempted reservation of property covered by the deed, and, being inconsistent with it, nullified the instrument; and that, inasmuch as the exempt property was not specifically described, it made the entire conveyance void for uncertainty.

This strikes us as a remarkable decision. It is true that a man cannot by one and the same instrument convey an estate and at the same time reserve the same property or any part of it; and, if he attempts to do so, the reservation is void; but it is quite manifest that nothing of that sort was here attempted. It was simply a conveyance of all the debtor’s property, except a certain portion, to wit, that which was by law exempt from execution. As to that portion, there was no conveyance and consequently no conflict. So much of this decision as declared that the reservation of the exempt property rendered the deed void because it was an attempt to reserve that which was by the deed conveyed, was by the same court overruled in the later case of Farquharson v. McDonald, 2 Heisk. 404. The court, however, in the later case seem still to be of the opinion that there must be some definite ascertainment and description of the property claimed as exempt, in order to render the reservation good, at least where the property is of that character that the debtor is entitled to select a certain amount out of a larger mass. Whether it was meant that a failure to make this selection in advance of an attack upon the conveyance by some dissatisfied creditor would avoid the whole deed, or would only have the effect of causing a loss of the exemption, does not in this case clearly appear; but in the still later one of Overton v. Holinshade, 5 Heisk. 683, it is distinctly announced that its effect will be to render the entire conveyance void. We cannot assent to any of these decisions. As above indicated, we concur in so much of the later ones as repudiate the idea that the deed is void because there is an attempted reservation inconsistent witli the general grant,— but we dissent from them in thinking that a failure specifically to describe the exempt property renders the conveyance void for uncertainty. If it has any evil effect whatever, manifestly it must be to render void the claim for exemption, and to cause a forfeiture of such claim. It is the exception or reservation that is insufficiently described, and thereby left uncertain and void ; while the conveying words of the instrument, being definite and embracing all the property of the grantor, must be operative to pass it all. The rule is well settled that in order to except certain property out of a conveyance, which without the exception would carry all, the words of exception must be as definite as those required to convey title; and that, if they are not so, the whole property.passes. An exception must be a part only of the thing granted, must be a particular thing out of a general one, and must be described with certainty. Co. Lift. 142 a. In a grant of land, excepting one and a half acres, the exception is void for uncertainty, and the title to the whole passes to the grantee. The language both of grants and of exceptions is to be taken most strongly against the grantor. Darling v. Crowell, 6 N. H. 421, and cases cited. We agree, however, with the Supreme Court of Michigan, in Smith v. Mitchell, 12 Mich. 180, that a reservation of exempt property without a minute specification of it neither avoids the deed nor is void in itself for uncertainty. That is certain which may be made certain. The law fixes the amount of the exemptions and points out the mode of its ascertainment. It was remarked by the court, in the case last cited, that “ a bona fide selection is as practicable here as under a levy.” We are not aware that officers holding executions or attachments ever experience any difficulty in finding out what is and what is not exempt by law to the debtor, and this, it would seem, can be as readily done by an assignee under a general assignment. Where the right of selection resides in the debtor, he can easily be made to exercise it, or forfeit it; and to compel him to do so would seem far more reasonable than to declare a conveyance embracing thousands of dollars worth of property void, because of the failure accurately to enumerate and describe the two mules, or the four cows and calves, that he claims as exempt. To declare an instrument void for such a reason could only be justified on the ground that the law or the courts hold preferential assignments mala per se, which, as we have declared, is not the rule in this State, though such instruments have usually received exceptionally severe treatment in other States. Our opinion is that the deed of assignment is not rendered void in this case because of the reservation of the exempt property, nor did the debtor lose the right to claim it, because it was not specifically described. Mulford v. Shirk, 26 Penn. St. 473; Heckman v. Messinger, 49 Penn. St. 465; Brooks v. Nichols, 17 Mich. 38; Hollister v. Loud, 2 Mich. 309.

Was the assignment fraudulent on its face because it gave the assignee power in his discretion to sell the property for cash or “on such advantageous credit terms as said trustee shall deem for the best advantage for all the creditors”? It is quite universally admitted that an assignment which requires .the property to be sold on a credit is fraudulent and void, because it is an attempt, upon the part of him who professes to be transferring his property to others, to impress upon it a condition inconsistent with -their right to realize their debts out of it. If the property is to be theirs, they and not he should say whether it shall be sold on a credit. Whether the same result will follow where there is a discretion confided to the trustee to sell for cash or credit, as shall in his opinion best promote the interests of the cestuis que trust, is a question upon which the authorities are in hopeless conflict. Bump, in his work on Fraudulent Conveyances, broadly lays down the doctrine that it will not, and seems to think that this is clear on the authorities. Bump Fraud. Con. 410. Our own investigations have led us to the conclusion that there is perhaps no question on which the authorities are more evenly divided, and that it is, therefore, one upon which each court may feel entirety at liberty to adopt whichever view seems to it best. It would be useless to repeat the various arguments on the one side or the other. The cases on both sides are collected in the note by Bump, and certainly the argument seems in these cases exhausted. We content ourselves, therefore, with announcing our concurrence with those decisions which hold that whether a provision authorizing the assignee to sell on a credit is fraudulent or not is a question of fact rather than of law, and cannot therefore justify a court in declaring such a deed, ipso facto, void. Such a power in the trustee may be of the greatest benefit to the beneficiaries, and should not be branded as necessarily covinous and fatal to the instrument. On the contrary, it may be used to the very great detriment of creditors, and exclusively or principally for the benefit of the debtor. It seems wisest, therefore, to hold it a question of fact, allowing the jury or the Chancellor to say in each case whether, looking to all the facts presented, it was inserted for the benefit of the grantor, or in order that by avoiding a forced sale of the property it might be made to realize a larger sum for the payment of the debts. If ascertained to have been inserted for the benefit of the debtor, it will render the conveyance void, and expose the property to the attacks of those dissatisfied with it. If intended to operate for the benefit of creditors, it will be sustained; but it will still be in the power of the court to order the assignee to sell for cash where such is the expressed desire of the beneficiaries, or where, in its own opinion, this will best promote the interests of a majority of them. Such construction should be given to all instruments as tends to promote rather than to destroy their object where that object is not itself illegal. Ut res magis valeat quam pereat. In any case, whenever it is made to appear to a Court of Chancery that the assignee is abusing the discretion vested in him, or using it for the benefit of the grantor to the detriment of the creditors, he will be removed and a receiver appointed.

The other principal objection urged against the deed of assignment is, that it permits the assignee to carry on and Continue the mercantile business, buying and selling in the ordinary course of trade, and replenishing the stock on hand at pleasure for an indefinite period. If such is its character, it is of course fraudulent under the principles announced in Harman v. Hoskins, 56 Miss. 142, and in Joseph v. Levi, 58 Miss. 848. The words of the deed which are relied on as showing the investiture of the assignee with these powers are as follows: “ and generally to do and perform to and with my assets and property herein conveyed whatever will, in his judgment, best promote the interests of the creditors.” As broad as this language is, and perhaps it is not well chosen because of its universality, we do not think it was intended to bear the obnoxious meaning sought to be attributed to it. When power is given to do whatever will best promote the interests of creditors, we must construe it as meaning whatever it is lawful for the grantee to do in the execution of the trust and no more. We cannot, for the purpose of destroying the instrument, impute to it an intention to do an unlawful thing because of a general grant of authority to do all that will tend to carry out and make it effectual. This would be a palpable violation of the maxim quoted above.

Our conclusion is, that there was nothing on the face of the deed which made it fraudulent in law. On the hearing of the motion to remove the assignee and appoint a receiver, testimony was adduced showing the mode and manner in which the assignee was administering the trust, and this testimony demonstrated that he was doing the very things which, if he had been by the deed authorized to do, it would have made the conveyance void, that is to say he was carrying on the business very much as if no assignment had been made. The assignee was but little in Jackson, and the business, though transacted in his name and doubtless under his orders, was in fact conducted by the grantor and his former clerks. The deed gave the assignee power to employ assistants, as was entirely proper, nor was it necessarily wrong in him to employ the grantor and his former clerks, provided matters were in fact conducted under his direction, and the assistants employed were the mere instruments of his will; but neither in person nor by others could he administer the trust as it was in fact administered. The business in hand was to sell out the property as speedily and as advantageously as possible, to collect the choses in action and with the proceeds pay off the debts in the order of priority named. Instead of doing this, the stock was replenished by fresh purchases and sold out on credit upon mortgages of ungrown crops, and generally the same course of dealing was pursued that in all probability had brought the unfortunate debtor to ruin in the first instance. The excuse for this is sought in the statement that such purchases only were made as sufficed to keep up the stock, so as to dispose of it to the best advantage, and they were bought for and sold only to those to whom the grantor was already under obligations to make advances to enable them to complete their crops, and that if this had not been done the whole of such debts would have been lost. Plausible as this excuse is, and however honestly the parties may have supposed they were acting within the powers conferred, such dealing with property assigned for the payment of debts is wholly unwarranted and inexcusable. The position of an assignee is much like that of an administrator. His sole business is to pay debts and return the excess, if there be any, to the maker of the deed. In the absence of express authority given him, he has no right to imperil a dollar of the assets by risking it on the uncertainties of crops to be grown in the future, nor has he any authority to spend any portion of the money on hand in buying new goods except where authorized by the deed of assignment and then only to such limited extent as is necessary to work off the stock on hand. Such things, in the absence of authority, can only be done by the unanimous consent of each and every creditor protected by the conveyance. The assignee was rightfully removed for undertaking, without the assent of the creditors, to do that which, if authorized by the deed, would have made it void.

In the future development of the case, if the facts shall demonstrate that the course of conduct pursued was in the contemplation of the grantor in executing the deed, and that it was executed for the purpose of being replaced in possession of property which he pretended to assign, or for the purpose of having the business carried on by another in such manner that there might be opportunity afforded of retrieving his losses by more fortunate ventures in the future, it will become the duty of the Chancellor to annul it as fraudulent in fact.

Decree affirmed, and cause remanded for further proceedings.