Sheldon v. Dodge & McClure

By the Court, Jewett, J. The plaintiffs’ right to recover de pends on the validity of the assignment to them by C. E. Morris; for, unless that conveyance can be sustained, the defendant was justified in levying upon the property under the execution in his hands. It seems to me that it contains a provision which, upon settled principles, renders it fraudulent and void against all such creditors of Morris as have not assented to it. I take it to be well established, and the doctrine was not controverted on the argument, that a debtor cannot put his property beyond the reach of his creditors, by assigning it to trustees for the payment of his debts, unless at the time he definitively settles their respective rights under the conveyance. (Hyslop v. Clarke, 14 John. 458; Wakeman v. Grover, 4 Paige, 41; S. C. in error, 11 Wend. 187.) When the last mentioned case was under consideration in the court for the correction of errors. Mr. Justice Sutherland declared that it had “ repeatedly been decided that an assignment which does not declare the uses, but reserves to the assignor the power of subsequently doing [222] it, is fraudulent and void;' and as the assignor cannot reserve the power of giving preference, to himself, he certainly cannot legally confer it upon his assignee. The same objection in principle exists in both cases. Barnum v. Hempstead, (7 Paige, 568,) was the case of a bill filed by a judgment cred-tor to set aside a voluntary assignment of property, made by the debtors to trustees, to sell and apply the proceeds to the payment of their debts. Preferences were given to three classes of creditors before the general creditors were reached; and there was then a provision authorizing the trustees, in their discretion, to pay any claims or demands against the assignors on account of certain specified contracts; and also to discharge all small debts due or to become due, to persons at a particular place, to an amount not exceeding $500, in preference to any of the creditors referred to in the classes before mentioned. The chancellor held that this discretionary power to make future preferences, was calculated to injure, delay, and hinder creditors in the collection of their just debts, and that it rendered the assignment fraudulent and void against such creditors. He added, “ So long as debtors are permitted to make assignments of their property in trust for the payment of their debts, without consulting their creditors on the subject, it is absolutely necessary for the protection of the rights of the latter, that the equitable interests in the assigned property should be fixed and determined by the assignment itself. Neither the debtor nor his friendly assignees, who are generally selected by himself, should have the power of giving preferences after-wards to any class of debts or of creditors.” It was said on the argument that the provision under consideration could not in the actual circumstances of this case prejudice the creditors provided for in the earlier classes, because those in the fourth and fifth classes could resort to McClure, who was primarily liable, and abundantly responsible, and those creditors could not be injured by a future preference over them in favor of those in the sixth class. If the facts are as the argument assumes, still it cannot change the uestion. It might as well be argued that a general power in [223] the assignees to make future preferences would be valid, because it had turned out in the particular case that the property assigned was sufficient to pay all the debts of the assignor. The vice is inherent in the assignment itself, and no future event can make a conveyance valid which contains illegal provisions. (Boardman v. Holliday, 10 Paige, 223.) Besides, the argument fails entirely as to a portion of the creditors in the fifth class, which includes individual creditors of Morris as well as those whose demands were against him and McClure. I am satisfied that- the provision referred to respecting the creditors in the sixth class, renders the assignment fraudulent and void against the creditors whose process the defendant assumed to execute. The preference in favor of W. Morris for $1000 presents an objection which I think is also fatal to the assignment. The actual debt due him from the assignor was only $500, though it was shown that the latter was in the daily expectation of receiving from him a further sum of the same amount. Upon what consideration this was to be received does not distinctly appear, but the inference clearly is that it was an advance by way of loan, to be afterwards repaid. If so, in what does it differ from a direct provision, for the future benefit of the assignor, to the amount of $500, at the expense of his creditors 1 The assignment appropriates so much of his property to repay W. Morris for this money, which the assignor was himself to receive. It is insisted by the plaintiff’s counsel that the money from W. Morris, when received, would pass into the hands of the assignees for the purposes of the trust; or that this, at all events, was a question of intent, which had been passed upon by the jury. In my judgment the money thus expected to be received, did not fall within any of the terms contained in the description of the property conveyed in the assignment. It was neither goods, chattels, wares, or merchandize; nor was it notes, accounts, or demands. Was it a “ right?” "most clearly not. It had nothing of the character of a claim. "The assignees could not claim it under the assignment, when received by the assignor; and the effect of the provision was, in my [224] judgment, tantamount to a direct provision for the benefit of the assignor. Honesty and fair dealing required that the truth of the transaction should- have been disclosed on the face-of the assignment; instead of which the provision was made to wear the appearance of a simple preference of an existing debt. It was in truth a mere disguise, under color of which the assignor is enabled' to enjoy a secret interest in property to the amount of $>500, respecting which no clue is furnished to the creditors by the assignment. Conceding that the validity of the assignment- in this respect depended upon the intent of the assignor, still, the doctrine of the charge cannot be sustained. The court instructed the jury that the whole of Morris’s property passed to . the assignees; and it was, in substance, suggested that they might find that he honestly believed that some note or evidence of debt was on its way to him, the sending of which created a debt against him to that amount. It has already been stated that the assignment does not contain terms adequate to pass the subject matter of the expected remittance. It has no general words embracing every description of property, and nothing could be claimed under it except such as would fall within the terms employed. For instance: if Morris had been the owner of real estate, it could not be pretended that it would pass by this assignment; and for reasons equally strong, money on hand would not be embraced. There was no evidence in the case to raise the inference suggested in the charge that Morris believed that a note or other security was on its way to him. According to the evidence, it was money and not a security for money, which he was looking for; and if, after the execution of this assignment, money had been received by' him from, the expected source, the assignees would not have been able, I apprehend, to have made title to it under the assignment. I think there is reason to say the jury were misled by this instruction. The court, after laying down in general terms the correct-doctrine in respect to reservations of a right to make future preferences, after an assignment, for the benefit of creditors, has taken effect, submitted to the jury as a question of fact whether [225] it was the intention of the parties to this conveyance, that Morris should direct in any way as to the debts to be assumed by Dodge; or whether the clause of the assignment under consideration was not inserted to prevent McClure from being put to cost and trouble in regard to the partnership debts of Morris & McClure, by procuring Dodge to assume those which pressed, and then preferring him. It certainly was not the province of the jury to pronounce upon the legal effect of the provision in question; for that was the province of the court. No question of intent in respect to it was in issue. The only point in dispute was as to its legal effect, and that was matter of law, upon which the court and not the jury was to respond. Believing that the court below erred in the particulars to which I have referred, I have, without examining several other questions which have been made, come to the conclusion that the judgment of the common pleas ought to be reversed. Judgment reversed.