Van Hook v. Walton

Willie, J. —The assignment of errors presents several grounds upon which it is sought to reverse the judgment of the court below, but, in the view which we take of the case, it becomes necessary to notice only two of them, viz: 1st, that the court erred in its charge to the jury; and, 2d, that it erred in not submitting to their consideration the trust deed and issues and proof in relation thereto. These two assignments may be considered together, as they involve the correctness of the only charge given by the court. This charge is as follows: “That if they” (the jury) “are satisfied, from the testimony, that Edgerton & Doane, at the time of the execution of the deed of trust, were creditors of Kirchhoffer & Woodward, and had a subsisting debt against this firm, for which the judgment in favor of Edgerton & Doane was rendered, the deed of trust is such an instrument as is not valid, and they will find for the defendants.” The deed was in form an assignment in trust for the benefit of creditors, in which some were preferred and others postponed; and to instruct the jury that it was invalid,' as to previous creditors, was error, unless it was executed with fraudulent intent, or in contravention of some statute expressly or impliedly prohibiting such conveyances. Mr. Justice Roberts, in Baldwin v. Peet, 22 Tex., 714, held that our courts do not possess a power, similar to that of courts of equity, of finding one material fact, that is not admitted, by inference from those that are admitted; and hence, that the court below had no right to infer that the deed in that case was made with fraudulent intent, from certain badges of fraud established in reference thereto. He goes on further to say, that the court may pass upon the validity of a general assignment, and declare it void or inoperative as to creditors—1st, when the fraudulent intent is expressed or admitted; 2d, when it contains a reservation of an interest, advantage, or benefit to the assignor, inconsistent with the object of the conveyance; 3d, when — 72 — the deed is wanting in some of the qualities, which, when .wanting in any deed, render it inoperative and invalid as a legal conveyance of property. Admitting, then, that the assignment is not wanting in any of the essential qualities, without which no conveyance is good, the court was not authorized to withdraw its consideration from the jury, and charge that it was void as to previous creditors for fraudulent intent, unless that intent was expressed or admitted, or unless the deed reserved some interest, advantage, or benefit to the assignor, inconsistent with the object of the conveyance. If fraudulent intent was only to be deduced from facts and circumstances, which the law considers as mere badges of fraud, and not fraud per se, these should have been submitted to the jury, so that they might have drawn their own inferences as to the fairness or fraudulent character of the transaction. It is not contended that fraud is either expressed or admitted in the execution of this assignment, nor can it bé said that it reserves an interest, advantage, or benefit to the. assignor, inconsistent with the object of the conveyance. The only interest reserved is in the surplus, after all the expenses of the trust, and all the debts of the assignors, have been paid. This is not improper or fraudulent, for it is no more than the law itself would imply. (Burr. on Assign., 178.) The circumstances from which, it is alleged, the court was authorized to declare the assignment in this case void are, that it was never delivered or recorded until two days after the levy; that the property conveyed by it was never delivered to the assignee; that the assignor continued in possession of the property under a pretended employment as clerk for the trustee; that the schedule of debts is not sufficiently explicit; that the deed provides for the payment of a debt due the trustee, the amount of which is not stated in the deed or schedule. If the deed were not delivered, of course it was not oper — 73 — ative. Delivery, however, is not always a fact that can be proved by direct evidence. It is sometimes a conclusion from other circumstances, and the court should have left the jury to draw their own inference on this subject under a proper instruction. The deed does not appear to have been filed for record until the next day after the levy, but there were facts proved which tended to show actual notice of its contents to the defendant, Walton, and the attorney of Edgerton & Doane. But it is said in argument that actual notice will not supply the place of registration, and render such an instrument valid as to prior creditors. This is not now an open question in this court. The same point was raised in the case of Givens v. Taylor, Hart & Co., 6 Tex., 315, and the court held, that notice of a similar instrument to the attorney of a previous creditor supplied the want of registration. The attorney in that case was the person who made the affidavit for the attachment; in this, he was the party who indemnified the sheriff and had the levy made. Again, in Bennett v. Cocks,‘the court sustained an unrecorded deed against a previous creditor with reasonable information of its contents. (15 Tex., 67.) The court, therefore, should not have declared the deed void for want of being registered before the levy, but should have submitted to the jury the proof introduced as to actual notice. The next circumstance is, that possession of the property was not delivered to the trustee. The predominant rule on this subject, and the one established in Texas, is, that possession by the assignor, where the deed is absolute, is prima fade evidence of fraud, which, if not explained away, makes the deed void as to creditors. (Bryant v. Kelton, 1 Tex., 415; Earle v. Thomas, 14 Tex., 592; 24 Tex., 61.) But it may be explained, being a mere badge of fraud, and, not fraud per se, and the facts in reference to it should be submitted to the jury. The employment of the assignor as a clerk would not of — 74 — itself be evidence of an original intent to defraud creditors. (Burr. on Assign., 431.) His employment might be necessary to a due execution of the trust. Bnder his general power of appointing clerks, the assignee may appoint the assignor, paying him suitable wages. But the appointment must be actual, not nominal, and held in strict subordination to the trustee, for the law looks upon this relation with distrust. (Id., 430-431.) It is not absolutely essential that the exact amount of. each debt intended to be secured by the deed of trust should be set forth. It has been held, that a debt intended to be secured may be described by the name of the creditor, and the amount left to be ascertained. (Layson v. Rowan, 7 Rob., 1.) It is important to the creditor that his debt should be so described as to be identified, but it will not vitiate the deed itself; at least it will not be sufficient to authorize the court to declare it fraudulent. (Burr. on Assign., 251-252.) For this reason we might also dispose of the ground taken, that the assignment provides for the payment of a debt due or to grow due to the trustee, the amount of which is not stated. Appellee contends, in his argument, that this expression would cover all future transactions between the assignor and assignee, wherein the former might become indebted to the latter. It is said by Mr. Burrill, in his work on Assignments, p. 71, that they may be made for the benefit of persons who may incur liabilities for the assignor at a future period in the shape of advances, suretyships, and the like; and in accordance with this doctrine was the decision of Hendricks v. Robinson, 2 Johns. Ch., 283. But, in the subsequent case of Barrow v. Hempstead, 7 Paige Ch., 568, the rule was limited so as not to extend to providing security for future advances by general assignments, especially when preferences are by this means given. In this latter case the assignment was, first, to pay expenses, and next to pay one of the assignees such sums — 75 — of money as should from time to time he due to him from assignors, and all such sums of money as he then was, or should thereafter become, liable to pay, or should pay, on account of the assignors, as indorser or otherwise. The chancellor construed this clause to mean the moneys that the assignee might thereafter pay, or become liable to pay, by reason of indorsements, or other contingent responsibilities, which he had already made or incurred on their account. The language of the deed now under consideration is much more susceptible of a construction which will make it apply alone to the present indebtedness of the assignor to the assignee than was the .language used in the New York case. The expression is, “the several and respective debts, notes, bonds, obligations and sums of money due, or to grow due, from said Kirchhoffer to said Van Hook,”. &c. The words “to grow due” might well be construed as synonymous with the expression “to become due” or “to mature,” and in fact are hardly capable of any other construction. And when we take into consideration the fact, that the same language is used in reference to the debts mentioned in the schedule attached, and that some of these debts are due, and "some are to mature in the future, but all existed at the date of the deed of trust, we can come to no other conclusion, than that the words “due and to grow due” were to include all his subsisting liabilities to Van Hook and the other parties named, as well those which were already due as those which had not arrived at maturity. We conclude, therefore, that the assignment was not vitiated by any circumstances that amount to fraud per se. If attended only with what are known as indicia or badges of fraud, these should have been submitted to the jury, in order that they might draw therefrom their own conclusions as to whether or not they established such fraudulent intent as would invalidate the deed. — 76 — But it is further insisted, that the assignment is in contravention of the law of January 19,1841, known as the bankrupt law, that it was made in contemplation of bankruptcy, and was void, because, under such circumstances, it preferred some creditors and postponed others. That a debtor in failing circumstances may dispose of his property in trust for the use and benefit of his creditors, giving a a preference in payment to one creditor over another, is a well-settled principle of American and English law. The only qualifications to which this rule is subject are, that the assignment shall be bona fide, and on good consideration, and not prohibited by any bankrupt law or other statute. (1 Amer. Lead. Cas., 95; 2 Kent’s Com., 532.) It is not contended that we had, at the time of the execution of this instrument, any law expressly forbidding such assignment, unless made with intent to hinder, delay, or defraud creditors. The bankrupt law of 1841 contains no express inhibition of them, and, if invalid at all by reason of that act, it must be because they are in opposition to the spirit and intention of the same. This point has been frequently submitted to the Supreme Court, but has never been expressly decided by them, as it was not a necessary and controlling question in any of the. cases where it was raised. They have, however, held on several occasions that assignments in trust, giving preference to certain creditors before others, were valid, if not within the statute of frauds; and we should be loth to disturb the harmony of these decisions, and interfere with the rights that have grown up under them, unless satisfied beyond a reasonable doubt that such assignments were directly contrary to the spirit and policy of some statute in force at the time they were made. Without pausing to consider whether the bankrupt act of 1841 was not impliedly repealed by the 15th section of the IVth article of the constitution of 1845, or by the act of 1848 organizing county courts, we will inquire whether the same, in — 77 — policy and spirit, prohibited the conveyance now under consideration. This statute provided, that any citizen or resident, if a male, being twenty-one years old, or a female eighteen years old or over, desiring to yield hie or her estate for the satisfaction of creditors, and obtain exoneration from existing debts. and pecuniary liabilities, might do so, in observance of certain rules laid down in the act. It is not necessary to state all these rules in full. The debtor was, however, to present a petition to the chief justice of the county where he resided, setting forth the names and additions of his creditors, and the amount of his debt, and praying the benefit of the act. He was required to make oath, among other things, that his petition was preferred in good faith, in order to a just transfer of his estate to his creditors; that he had not conveyed the same with intent to hinder, delay, or defraud his creditors; that none of it was in the possession of any person, under a secret trust, for the benefit of the debtor; and that his transfer contained a full exhibition of such estate as was known to him. Hotiee of his application was to be published in some newspaper, and, at the time specified in the law, he was to take the above oath and make to assignees a deed of trust of all his property, to be distributed by them according to the provisions of the act, and the conveyance was to be considered as embracing such of his estate as was not recollected or enumerated. The trustees were to he selected by a majority of the creditors, or, in default of such selections, by the chief justice. The chief justice was then to discharge him from his existing debt liabilities. The duties of the trustees are thus laid down at length. The only one of these duties which we need mention is, that they were to sue for and recover all such property as the debtor had previously conveyed fraudulently, and for the purpose of hindering, delaying, defrauding, and defeating creditors. We have not attempted to give the exact language of the statute, hut only to give in substance a — 78 — portion of its important provisions. Is there anything in the above provisions impliedly forbidding the instrument now in question? We think not. The Statute is evidently intended for the benefit of the debtor, and it is optional with him whether he will take the benefit of its provisions or not. Ho act which he can commit, no attempt which he might make to put himself or his property beyond the reach of the law, would author-' ize a creditor to compel the assignment contemplated by the statute. If he choose to accept its provisions, he must place all his property, with certain exceptions, under the control of trustees ajDpointed by his creditors, to be equally distributed among them. In that case, his future acquisitions are to be exempt from seizure and sale for existing debts. If, on the contrary, he choose to select his own trustees, and distribute his property according to his own choice, he has the liberty so to do, hut his future gains will be liable for every portion of his liabilities which may not be paid with the property assigned. Hot so with the English bankrupt law, nor with the act of Congress of April 4, 1800. These laws were made for the benefit of the creditor. For some act committed by a trader, his property could be seized at the instance of a creditor, taken from his possession, and placed in the hands of assignees, to be by them managed and distributed for the benefit of all his creditors. One of the very, acts for which a commission in bankruptcy issued was the making of an assignment of all the debtor’s property for the benefit of preferred creditors. (Burr. on Assign., 14.) This, being in itself an act of bankruptcy, was reasonably construed to be within the prohibitions of the law. One reason why a general assignment, with preferences, should be held void, under a code of bankruptcy enacted for the benefit of the creditor, and not under one created for the debtor’s benefit, is very apparent. In the one case, a very important right is guaranteed to the' creditor by the law itself. It is to set — 79 — the act in operation against the debtor upon the commission of certain acts, and to have the latter’s entire estate transferred to assignees for equal distribution amongst those to whom he is indebted. If the insolvent were allowed to transfer his property to a favored party, he would defeat 'this right, and render the law inoperative. In the other case, no such right is secured to the' creditor, and hence none is defeated. The bankrupt law furnished him with no remedies against his defaulting debtor, and he is therefore deprived of none by an act which renders its provisions useless. In accordance with this view, we find that where such acts provide that creditors only shall set its provisions in operation, there is no express prohibition of such conveyances as we have now under consideration. For instance, the two acts to which we have before alluded, that of George IV, ch. 16, and that of the United States of April 4, 1800, being solely for the benefit of creditors, do not expressly prohibit by name assignments preferring creditors. On the other hand, when such acts are made, in whole or in part, for the benefit of the insolvent, they contain in themselves an express prohibition of such assignment, or these are declared void by other laws of the same government. Thus the United States bankrupt act of 1841 was enacted as well for the relief of insolvent debtors as of creditors, and the express prohibition above alluded to is contained in it. Massachusetts has a well-digested system of bankruptcy, which may be taken advantage of by the debtor, and a similar express inhibition is contained therein. Very few of the other States have adopted any other system than what is known as an insolvent law, for the relief of the debtor’s body from imprisonment. In Wisconsin, however, a law very similar to our statute of 1841 has been passed, and it has been thought proper to pass an additional act to prevent partners in limited partnerships from assigning partnership funds for the benefit of preferred creditors, thus showing that the legis — 80 — lature did not consider any such assignment within the implied prohibition of their bankrupt act. (See Laws 1858, p. 415.) We thus have legislative interpretation to the effect, that such trust deeds as we are now considering are not impliedly prohibited by a code of bankruptcy which is enacted for the sole protection of the creditor. Although assignments preferring creditors are scrutinized very closely by the courts, and are not sustained if tainted with fraud, yet they will not hold that the right to make them is taken away by mere implication from any statute on the subject. They place a strict construction upon all acts of the legislature expressly forbidding such assignments, and will not hold the latter void, unless they come within the letter of the law. Thus, in Pennsylvania, the act of 17th April, 1843, declares that assignments in trust for the benefit of creditors thereafter made by a debtor to trustees shall be held to inure to the benefit of all the creditors, &c. Vet it is decided that a debtor in failing circumstances is not forbidden by that act to confess a judgment, so as to give preference to one creditor over others, and a preference made in this manner will not inure to the benefit of all the creditors. (7 Barry, 451.) The New York insolvent law provides, among other things, that if a debtor, in contemplation of bankruptcy, make an assignment, or confess a judgment, or give a security with a view to give a preference to an antecedent debt, he shall not be discharged under the statute. (2 Rev. Stats., § 20.) Under this provision it is held, that such an assignment is not void, but the debtor, by making it, deprives himself of the benefit of the bankrupt law thereafter. (3 Paige Ch., 317, 821.) In Ohio, by the act of 1835, all conveyances' to trustees, in contemplation of insolvency, with design to secure one class of creditors and defraud others, inure to the benefit — 81 — of all creditors in proportion to the amount of .their demands. In Hull v. Jeffrey, 8 Ohio, 391, this provision was held to apply only to conveyances to trustees, and not to those made directly to a creditor, nor to those made without fraud. These decisions are referred to in order'to show that the tendency of the courts is not to invalidate such, assignments hy mere implication. Reasons could he multiplied to sustain the position which we take, that the assignment now under consideration was not affected hy the bankrupt law of 1841, but we deem it unnecessary to dwell longer upon so evident a proposition. The point is pressed with much ability and earnestness by appellee’s counsel, and seems to have been the one upon which the case turned in the court below, or w.e should not have given it so extended a consideration. It was error for the court to charge the jury that the assignment made by Kirchhoffer to Van Hook was absolutely invalid as to previous creditors. The circumstances under which the same was made should have been submitted to the jury under appropriate instructions, so that they might have drawn their own conclusions. For this error the judgment of the court below is reversed, and the cause Remanded.