Humphries v. Freeman

Wheeler, Ch. J. It is not questioned, and, indeed, it is quite evident, that the assignment was made with the intention — 49 — on the part of Case, not merely to pay or secure the debt of Freeman, but to reserve and secure a benefit to himself, free of the claims of creditors. He was embarrassed, and indeed, was notoriously insolvent; judgments had been recovered against him, on Avhich numerous executions had been issued; property Avas not found to satisfy them, and some of them were in the hands of officers, ready to be levied upon any of his property that might be discovered. He had erected, near his residence in the county, a mill-house, and buildings suitable to receive the mill and stills in question, and put them in operation. He had purchased them in New Orleans, and had them shipped, and was expecting shortly to receive them; but on their arrival, they would most certainly be levied on, and taken in satisfaction of some of the executions against him, if he did not, by some means, place them beyond the reach of creditors. He, therefore, finds one of his creditors, to whom he owed a debt considerably less than the value of the articles, and assigns them absolutely to him, Freeman, A-dth a private understanding—that is, an understanding that did not appear on the face of the transaction—that he should have the privilege of paying the debt and charges, Avithin a reasonable time, left indefinite, and of reclaiming the property. By this means, the property, on its arrival, would appear to belong absolutely to Freeman ; and would be thus sheltered and placed beyond the-reach of creditors, until the opportunity should be afforded, it may be, to annex it to the freehold upon his homestead, where-he had prepared to receive it; or until he could make some-other disposition of it, for his own benefit. He, of course, knew that the reservation, thus secretly, of a benefit to himself, was, in fraud of his creditors, who would otherwise levy upon the-property; and that the effect of the arrangement made with Freeman Avas, to defeat their claims as to this property. That it was, on his part, a contrivance intended “ to delay, hinder, or defraud creditors,” is quite sufficiently apparent. Then, so-far as he is concerned, it is free from doubt, that the assignment — 50 — was.made in violation of the statute, and is, by its terms, declared fraudulent and void. Can it be doubted, that Freeman had notice, that Case was acting in fraud of his creditors ? It is not necessary that he-should have been influenced in what he did, by a like fraudulent intent, in order to avoid the assignment as to him also ; or that he should have intended to assist Case to defraud his creditors; or that he should have had actual knowledge that such, in fact, was the intention of Case. It is sufficient to affect him with notice, if by ordinary diligence he might have known. If he had a knowledge of such facts, as were calculated to create a suspicion that such was the purpose of Case, and to put him upon inquiry; if, in a word, he had reason to know or believe that such was the intention of Case, it is sufficient to avoid the assignment as to him, as effectually as if he had actually known it. What, then, are the facts ? Case was indebted to him; he had difficulty to get his money; he knew the embarrassment of Case, and that executions had been levied on his property. Case proposes, in payment of, or security for his debt, to assign to him the bills of purchase of this property, it not having yet arrived; exhibits to him the evidences of his bills, which disclose the fact that the larger part of it had been purchased, not in the name of Case, the real purchaser, but of a third person, who was the ostensible owner. He, Freeman, accepted the assignment of the property, at the nominal sum of its original cost, expressed and receipted for in the assignment, and a sum considerably greater than the debt it was really intended to pay or secure; and had a private understanding with Case, that he, Case, should have the privilege of paying the debt he owed Freeman, within a reasonable time, and of reclaiming his property. Can it be doubted, that the facts were sufficient to suggest to a man of ordinary discernment, what must have been the motive of Case? Freeman must have known, that articles such as these had not been purchased and brought here from New Orleans, for the purpose of being thus disposed of, to pay debts at less than their cost; but that they were intended for an en — 51 — tirely different purpose. He could scarcely have been ignorant, that Case had a motive in having the purchase made, not in his own name, but in that of a third person, and that he had a like motive in assigning the property to him, with a secret reservation for his own benefit, before the property came within the reach of his creditors. The “reasonable time” he gave Case to reclaim the property, must have been solely for the benefit of Case and to suit his convenience; for, it seems, that Freeman had thought before this, that he had already waited on Case for his debt a reasonable time, and was urgent to have it paid. His knowledge of the embarrassment of Case, was quite sufficient to suggest the trué motive, when such a proposition was made by Case. A secret trust for the benefit of the assignor, accompanying an assignment of property by an insolvent debtor, has always been held to be a sign, if not decisive evidence, of fraud; especially where, as in this case, the debtor transfers all the property he has, that is subject to be taken in execution. All these facts, known to Freeman, were certainly sufficient to put him on inquiry, and to affect him with notice; and consequently, to affect the property, in his hands, with the fraud of his assignor. The evidence ought to have been decisive in the minds of the jury, that the assignment was fraudulent and void under the statute, as having been made with the intent to delay, hinder and defraud the creditors of Case. It is not improbable, that the jury were influenced in their finding, by the offer of the defendant to surrender the property, upon being paid his demand against Case ; and perhaps, by the belief, that his real purpose was to save himself from loss, and not to defraud the other creditors of Case. And such may have been his intention. He may have been actuated solely by a desire to secure his own debt, and may not have wished to assist Case in shielding his property from the claims of other creditors. But his offer to surrender the property, upon payment of his debt, was of no avail. He could not impose such terms upon other creditors. Nor was it sufficient to make him a bond fide purchaser, that his purpose was not to defraud the — 52 — other creditors of Case, but to secure his own debt. lie must not have had notice of the fraud being perpetrated, or attempted to be perpetrated, by his assignor. Notice, in such cases, makes a man a mala fide purchaser, although he paid value. It is, per se, evidence of mala fidcs. In order that the purchaser may be protected, he must not only have paid value, but ho must not have known, or have had reason to know, or believe, that he was enabling his vendor to make a disposition of property, for his own benefit, which of right belonged to his creditors. It seems impossible to resist the conviction, therefore, that in the first place, Case made the assignment with the intent to delay, hinder or defraud his creditors ; and in the second place, that Ereeman accepted the assignment with notice. And this, under the statute, makes the assignment fraudulent and void as to creditors. And it results, that the jury found manifestly contrary to law and the evidence ; and that their verdict ought to have been set aside, and a new trial granted. We have not thought it necessary to revise the rulings of the court upon instructions to the jury. It is, however, to bo observed, that the jury were not informed by the charge of the court, as to the effect of notice to the assignee ; and that it would avoid the assignment, if fraudulent on the part of the assignor. The fifth proposition in the charge was calculated to mislead upon this point, by inducing the belief that, if the defendant was not actuated by an intention to defraud the other creditors of Case, but by a desire to secure his own debt, that, of itself, was sufficient to protect him in his purchase. And this, perhaps, would be the impression produced by the entire charge of the court. The tenth instruction asked by the plaintiff and refused, was calculated to correct this impression. The only possible objection there can be to this charge is, that it seems to assume and take for granted, that the jury would find the transaction fraudulent on the part of Case. Rut the proposition it contains, as to the effect of knowledge on the part of the defendant, of the purpose of his assignor, was so important and pertinent to the — 53 — case, that it ought to have been submitted to the jury, in some form. They ought further to have been apprised by the charge, that actual knowledge of such fraudulent intent was not necessary; that the means of knowing, by the use of ordinary diligence, amounted to notice, and was equivalent to actual knowledge, in contemplation of law ; and it may be, that the want of this information, is the true way to account for their finding. But it is sufficient for the decision of the case, that whatever may have caused the jury to return such a verdict, upon such proof, it is manifestly contrary to law and the evidence ; and the court, therefore, erred in refusing a new trial; for which the judgment is reversed, and the cause remanded. Reversed and remanded.