Murray v. Riggs

Thompson, Ch. J. It has been correctly stated, that the material question in this case grows out of the deed of the 23d of March, 1798, taken in connexion with the subsequent deeds between the same parties. But there have been some matters pressed into the argument which may be deemed, in some measure, collateral to the main question, and which it will be proper to notice, in order to prepare the mind for a just and correct view of those instruments. It has been broadly assorted, in argument, that the appellant was chargeable with fraud in fact. Upon what this assertion is bottomed, I have been unable to discover from an examination of the case. The charge is, to be sure, made in the bill; but it is met, and utterly repelled and de — 583 — niedby the answer, and there is not a particle of proof to make out the charge. We must, therefore, reject this allegation as entirely destitute of foundation, arising from any extrinsic circumstances, which have been shown either to make out fraud in fact, or even to cast a suspicion upon the conduct of the appellant. If the transaction is to be stamped with the character of fraud, it must arise intrinsically from the deeds themselves. Whenever the fraud, if it exist at all, is to be collected only from the deeds themselves, it then becomes a question of fraud in law. No moral turpitude is attached to this species of fraud ; or if at all, it is in a much less degree than where actual fraud, or fraud in fact, is imputable to the transaction. Again; the maxim, “ equality is equity,” has been urged, with much apparent plausibility, against countenancing a sinking debtor, in giving perference to any of his creditors. Indeed, His Honour the Chancellor, in this case, whilst he admits the legality of such preference, doubts its policy; and enters into many considerations, showing the abuses to which this principle may lead. Was this question submitted to this court as a question of policy, different views on the subject might be presented; but I do not feel myself at liberty to indulge in considerations of this kind, lest the apparent equity of the rule might have undue weight when misapplied to the case before us. If there is any principle of law settled, both here and in the English courts, it is, that a debtor in failing circumstances may prefer one creditor, or one set of creditors, to another, except when controlled by the operation of a bankrupt system. Preferences are by that system forbidden; butX as we had no such system, at the time the deeds in question were given, we must decide this cause independent of the rules and policy peculiarly governing such cases. Although the legality of such preferences are too well established to require further consideration, it may not be amiss to notice some few of the adjudged cases on this question, to see how strongly the principle is fixed in our system of jurisprudence. No stronger cases need be referred to than those relied upon by the Chancellor. In the case of Small v. Oudley, (2 P. Wms. 427.) the assignment was made to a — 584 — particular creditor, and but the day before the act of bank* ruplcy was committed, and was made even without the knowledge of the assignee. The Master of the Rolls sa-d, there may be just reason for a sinking trader to give a preference to one creditor before another; to one that has been a faithful friend, and for a just debt lent him, in extremity, when the rest of his debts might be due from, him as a dealer in trade, wherein his creditors; may have been gainers. Cases, says he, may be so circumstanced, that the trader honestly may, nay, ought to give the preference. These observations apply with peculiar force to the case before us. A very considerable proportion of the appellant’s claim consists of moneys and bills advanced, and responsibilities incurred, as endorser, surety, and bail; all which have always been considered, in courts of justice, as having strong claims to priority and protection. So in the case of Cock v. Goodfellow, (10 Mod. 489.) the assignment was made to secure the fortunes of children; and the Lord Chancellor, in answering some of the objections made to che deed, observes, that the objection against it, “ because made so near the act of bankruptcy, is a very frivolous one; for the deeds meant by the statute, are deeds made to defraud creditors, whereas this was a deed made to secure a just debt. But,” says he, “ it is objected, that this deed is made to give an undue preference to children. I know not what law or reason there is to favour this objection. Anybody may make his creditor executor, and then the law gives him a preference; not only so, but the law allows the executor to give any other creditor, in equal degree, a preference.” “A man who knows he must be a bankrupt, may, by law, pay off any of his creditors ; and this power, as it may he abused, so, on the other hand, may be very properly exercised. There may be particular objections in point of gratitude,” &c. Here the broad and unqualified legal right to give a preference to creditors, is explicitly laid down, although it is said, it may sometimes be abused. This, too, is the doctrine of a Court pf Chancery, and not deemed in hostility with the maxim, that equality is equity. The same principle is recognized and sanctioned in the Courts of Common Law. In the case of — 585 — Estwick v. Caillaud, (5 Term Rep. 424.) Lord Kenyon says, 11 it is neither illegal nor immoral, to prefer one set of creditors to another.” And, again, in Nunn v. Wilsmore, (8 Term Rep. 528.) he says, “ putting the bankrupt laws out of the case, a debtor may assign all his effects for the benefit of particular creditors.” So, also, in our Supreme Court, in M'-Menomy and Townsend v. Ferrers, (3 Johns. Rep. 84.) Mr. Justice Van Ness, in giving the opinion of the court, says, “ before the bankrupt law, debtors had a right to give a preference to bona fide creditors. There is nothing in our insolvent laws to prohibit it, and the bankrupt law left this right until the 1st of June, 1800 ;” but, admitting the deed, was made with a view of giving a preference to certain creditors, and of which there was no doubt, “ that,” says he, “ was permitted by the law of this state, and was not prohibited by the act of congress, and, therefore, not fraudulent.” This is a very strong case ; for the assignment was made after the passing of the late bankrupt law, (4th April, 1800.) and before the time of its going into operation. (1st June, 1800.) Again; in Willis and Fontain v. Ferris, (5 Johns. Rep. 344.) the Supreme Court say, the debtor might lawfully prefer one set of creditors to another ; that it would be a waste of time to take notice of all the cases cited in support of this point ; that of Estwick v. Caillaud fully-established it. I think I may, then, assume it as a settled and unshaken principle, both at law and in equity, that a failing debtor has a just, legal, and moral right to prefer, in payment, one creditor, or set of creditors, to another; and not to extend the benefit of this rule, so well and so solemnly settled, to the case before us, appears to me to be admitting the principle in theory, but utterly denying to it all practical application. With this view of the legal rights of the debtor and creditor, and stripping the case of all imputation of actual fraud, which there is no colour or ground to support, I proceed to notice the deeds under which the appellant claims to have acquired the preference he now sets up ; and to examine whether legal fraud is to be inferred from any thing contained in the deeds themselves. The only circumstance relied upon in support of the allegation of frau4 is, — 586 — that in some of the deeds the grantors, Robert Murray $/■ Co., have reserved a power to revoke and alter the trusts or appointments therein contained. This objection does not apply to the deed of the 31st of May, 1800 ; that is absolute and irrevocable. This, in connexion with the first deed of the 23d of March, 1798, would, in my judgment, be amply sufficient to protect and establish the appellant’s preference thereby gained. I do not see why the intermediate deeds of the 24th of March, 1798, and the 21st and 22d of March, 1799, may not be entirely laid out of view, as it respects the rights and claims set up by the respondents. Their title accrued afrer the 31st of May, 1800; and if, at that time, as between Robert Murray 4' Co., and John B. ■Murray, all the title and interest of the former was transferred to the latter, there was nothing to pass under the bankrupt assignment to the respondents. If the controversy was between John B. Murray and some person deriving title from Robert Murray Co., prior to the 31st of May, 1800, and whilst the property was held under the revocable deeds, a very different question might be presented ; but that is not the case here. The assignees of the bankrupt, Robert Murray, can take nothing but what the bankrupt himself could assign to them. (10 Mod. 497. 1 Atk. 191. Salk. 449.) All these intermediate deeds between that of the 23d of March, 1798, and the one of the 31st of May, 1800, if they are taken into consideration as forming a part of the transaction, were not, as between the parties to them, absolutely void, and incapable of confirmation. A deed founded in actual and positive fraud, as being made under the influence of corrupt motives, and with an intention to cheat creditors, may be considered void, ab initia, and never to have had any lawful existence. The grantee in the deed may be considered a pariiceps criminis, and is not permitted to deduce any right from an act founded in actual fraud. . But this rule is not applied to contracts which are only considered fraudulent by construction of law, as being against the policy or provisions of some particular statutes. Such deeds are capable of confirmation. (4 Johns. Rep. 598.) “ It has been a principle of long standing, and uniformly recognized,” says the Chan587 cell or, in the case of Sterry v. Arden, (1 Johns. Ch. Rep. 271.) “that a deed voluntary and fraudulent, in its creation, and voidable by a purchaser, may become good by matter ex post facto. It is the constant Ianguage of the books, and of the courts, that a voluntary deed, which would have been void as against creditors, may be supported and made good by a subsequent valuable consideration.” (1 Sid. 133. 1 East, 95.) This doctrine, after-wards, on appeal, received the sanction of this court. Admitting, therefore, that the deeds reserving the power of revocation, come within the policy of the statute of frauds, (for they do not within the letter, as the statute relates to conveyances of land) they were voidable only, and subject to the control and confirmation of the parties, as long as the rights of third persons did not intervene and attach. The deed of the 31st of May, 1800, was such confirmation; and no intervening rights of creditors had attached. Wo judgments or execution, or any other legal lien, was set up. The statute (1 N. R. L. 77.) only declares all grants of land, with power of revocation, void against subsequent purchasers for a valuable consideration. It is to such cases only, that the observations in Tyler v. Littleton, (2 Brownl. 190.) and in Twine’s case, which have been cited and relied on, are to be applied. In Lavender v. Blackstonc, (3 Lev. 146.) one of the principal grounds upon which the conveyance was set aside, was, because it had a proviso enabling the grantor to make leases for any term without rent; and this was considered as putting it in his power to defeat the whole settlement. But the deed of the 31st of May, 1800, in this case, contains no proviso whatever, by which the grantors could defeat its operation. It ought to be constantly kept in mind, that the conflicting claims of the parties here, did not arise whilst the power of revocation existed. That power was completely extinguished by the deed of 1800, and before the respondents acquired any interest in the subjects embraced in those, deeds. There can be no doubt, but that at that time (May, 1800) an original assignment might have been legally made, giving to J. B. Murray all the claim now set up. If so, there could be no good reason against his then taking a rati — 588 — fication, or confirmation, of any prior defective assignment» In the case of Tarbuck v. Marbury, (2 Vern. 510.) so much relied on for setting aside these assignments, it was a judgment creditor who was setting up his claim against the deed, which was set aside, because the power reserved to the grantor to mortgage and charge the estate with what sums he thought lit, was considered as amounting in effect, to a power of revocation. Where the creditor is pursuing his debtor with a judgment and execution, or in any other manner, to enforce payment of his demand, an assignment of the debtor’s property, containing a power of revocation, may very well be considered as made to “ delay, hinder, or defraud creditors,” according to the language of the statute of frauds. But I do not see how it could, in any sense, be said to delay or hinder a creditor, who was taking no measures to enforce payment of his demand, as is the case now before us. For any thing that appears, all the creditors of Robert Murray 4r Co. were satisfied with the assignment, and the provision there made for the payment of their debts. This is an im-. portant feature, in which this case is distinguishable from the one of Clark v. Hyslop, decided in the Supreme Court, and on which so much reliance has been placed. Clark there was a judgment creditor, and had issued an execution against Tiis debtor, which was levied on the property 'assigned to Hyslop. This levy was made at a time, too, when by the very terms of the assignment, the property was not held under it, that is, after some of the creditors had refused to come in and accept of the terms proposed, and be'fore any new trusts were declared, pursuant to the provisions in the assignment. It was with great propriety there said, that locking up the property in this manner was decaying and hindering creditors. The observations of Lord Ellenborough, in Meux, qui tam. v. Howell, (4 Term Rep. 14.) would seem to show that no creditor could be considered as delayed or hindered, within the sense and meaning of the statute of frauds, except such as were taking some measures to recover their debt. He says further, that the statute was meant to prevent the operation of deeds, &e. fraudulent in their concoction, and notmerely such as, in their effect, might •delay or hinder other creditors. (1 Vesey, Jun. 160.) — 589 — It is said by the Chancellor, that it may be doubted whether the power of revocation contained in the prior deeds was not continued in the deed of the 31st of May, 1800. This did not, however, seem to be contended on the argument, and I am not able to discover any thing in this deed to justify such doubt. It appears to me to be an absolute and irrevocable appropriation of the property and debts described in the original assignment of the 23d of March, 1798. It recites and adopts that deed, and gives a final and absolute direction as to the payment of the debts therein specified; and at this time there was no impediment to the grantors so doing. They were the absolute and uncontrolled owners of the property. There was no judgment or other lien upon it. They could sell and dispose of it, at pleasure ; and might, most unquestionably, annex what trusts they thought proper. If, as I think I have shown, they had a just, legal, and moral right, to give preferences to certain creditors, there is no principle of law or equity that will justify taking away the preference thus given. The grantors having reserved to their own use for their maintenance and support, a part of the property covered by this deed, forms no objection to the appropriation of the residue. This is fully established by the cases I have already referred to, and is, indeed, admitted by the Chancellor in the case before us, Though in case of a deficiency to satisfy the creditors, they might apply to a Court of Equity, for the appropriation of the property so reserved, towards the payment of their demands. Briefly to recapitulate what I have said thus far on this case : If the deed of the 31st of May, 1800, maybe taken in* connexion with that of the 23d of March, 1798, laying out of view, altogether, the intermediate deeds, as I think they may, in my judgment, there is no pretence whatever for setting them aside as fraudulent. They contain a clear, absolute, and irrevocable transfer and appropriation of the debts and property therein described ; and this, too, at a time when the grantors were under no disabilities that disqualified them from making the assignment. But, admitting that all the intermediate deeds, which contain the power — 590 — of revocation, are to be taken in connection with the others, as forming one entire transaction, still there are no ground's on which the respondents can now claim to set them aside. The power reserved to the grantors to revoke, and alter the trusts, forms the sole ground of exception. This, as between the parties, makes those deeds voidable only. If so, they are susceptible of modification and confirmation ; and were modified and confirmed, and rendered irrevocable, by the deed of the 31st of May, 1800. If, as I have already mentioned, a controversy respecting this property had arisen between John B. Murray and some of the creditors of Robert Murray Co., previous to May, 1800, and whilst these prior deeds were revocable, a very different question might arise. The transaction might very well, in that case, be considered as an expedient to lock up the property, and keep it out of the reach of the prosecuting creditor. But the respondents come here as the assignees of Robert Murray, and under a title derived from him, after his assignment to John B. Murray was confirmed and made irrevocable. In my opinion, therefore, the decree which declares these deeds null and void, ought to be reversed. Admitting, however, the decree, in this respect, to be correct, it cannot be affirmed throughout. The cause must, at all events, be sent back to a master to take a new account. The order of reference, and the report of the master, are all founded on the assumption that the assignment was valid. The master is directed to take an account of the moneys received, and of the moneys paid or retained by John B. Murray, and which ought to be allowed him in pursuance of the trust; and he has made no discrimination between the moneys received under this assignment, or otherwise. If the assignment is declared void, it cannot affect any rights which the appellant may have acquired under any previous assignments, or transactions, between him and Robert Murray & Co. That he had acquired such rights, sufficiently appears, from the case before us, to justify sending the cause back to a master for a new account of moneys received and paid under such prior assignment, or dealings, between the parties. — 591 — Nor does it appear to me, that the decree ordering the appellant to pay the 81,836 dollars can be sustained, even within the principles laid down by the chancellor. He does not profess to make the appellant account for any more than he received under the assignment. On this part of the case, he says, the question is, whether I ought not to go further, and make J. B. Murray account for the property he has received under the assignment, and place that also in the hands of the assignees of Robert Murray, for general and equal distribution; and concludes, that he cannot perceive any other alternative, but either to give complete effect to the assignment, as a fair and valid instrument, or to make J. B. Murray account for the property received under it. And the latter, he says, is the proper conclusion. Admitting this to be the correct principle, the decree makes him account for property he never did receive under that assignment, but in pursuance of arrangements antecedent to it; and this, too, without the least imputation of fraud or unfair conduct. The claim on the British government, and the negotiation with Bird, Savage Bird, fall within this class. I do not perceive why, even laying aside the assignment, J. B, Murray is not entitled to retain a considerable portion of his demand, by way of set-off, under the bankrupt law. That act declares, that where there has been mutual credit given by the bankrupt and any other person, or mutual debts between them at any time before the person became bankrupt, the one debt may be set off against the other, and the balance only claimed. This provision has, under the bankrupt system in England, received a liberal construction, where such debts or credits have accrued, without any intention to defraud the rest of the creditors of the bankrupt. No such intention has been imputed to the appellant, prior to the first assignment of the 23d of March, 1798. (1 Atk. 228. 4 Term Rep. 211. 1 Term Rep. 285.) Lord Hardwicke, in the case ex parte Deeze, (1 Atk. 228.) says, “ notwithstanding the rules of law, as to bankrupts, reduces all creditors to an equality, yet it is hard, when a man has a debt due from a bankrupt, and has, at the same time, goods of the bankrupt in his hands, which cannot be got from him without the assistance of Hav or equity, that the assignee — 592 — should take them from him, without satisfying the whole debt; and, therefore, the clause in the statute relating to mutual credit has received a very liberal construction; and there have been many cases which that clause has been extended to, where an action of account would not lie ; nor could the Court of Chancery upon a bill decree an account.” That mutual credit was not confined to pecuniary demands, but extended to all cases where the creditor had goods in his hands of the debtor, and which could not be got at without an action at law, or a bill in equity. Numerous cases might be cited, both at law and in equity, which sanction and enforce this principle. But I think it unnecessary further to pursue this part of the case, as I place my opinion principally upon the validity of the assignments, especially the one of the 31st of May, 1800, in connection with that of the 23d of March, 1798. I am, accordingly, of opinion, that the decree of the Court of Chancery ought to be reversed. Spencer, J. was absent on account of sickness. Yates, J. concurred in the opinion of the Chief Justice. Van Ness, J. and Platt, J. and eight of the senators, were of opinion, that the decree ought to be reversed in part only; but a majority of the court concurring in the opinion delivered by the Chief Justice, it was ordered, adjudged, and decreed, that the decree of the Court of Chancery be wholly reversed, on the ground, that the assignment of the 31st of May, 1800, was legal and valid. Decree of reversal. END OP THE CASES IN ERROR.