Bentz v. Rockey

The opinion of the court was delivered, May 11th, 1872, by Williams, J. Where there is no question of bankruptcy, the law does not adjudge the sale or transfer of property by an insolvent debtor in satisfaction of his indebtedness, when accompanied by actual delivery of possession, to be fraudulent and void, if there is no intent to hinder, delay and defraud creditors in the [77] collection of their claims, though this may he the tendency and effect of such sale or transfer. A debtor has the undoubted right to sell and dispose of his property, for the payment of his debts, and the payment of one creditor is no fraud upon other creditors. In the absence of legal fraud, it is the intent with which the sale or transfer is made, and not its tendency and effect, that gives character to the transaction, and stamps it as honest or fraudulent. If it be made with the honest intent of discharging the vendor’s indebtedness to the vendee, the sale is not fraudulent though its tendency and effect may be to postpone other creditors or to prevent them from obtaining payment at all: Covanhovan v. Hart, 9 Harris 495; York Co. Bank v. Carter, 2 Wright 446. It follows that there was error in charging the jury, in affirmance of the plaintiff’p sixth point, that if the tendency and effect of the agreement and arrangement between Roller and Bentz, as to the property named in the bill of sale, was to hinder, defeat or delay the creditors of Roller in the collection of their claims, the transaction was illegal and void as against such creditors. If, as the point impliedly admits, there was an absolute sale and delivery of the property, for a fair price, without any fraudulent intent, it is clear that the transaction was not illegal and void as against creditors, though it may have deprived them of the means of obtaining the payment of their claims. But while an insolvent debtor may make an absolute sale of his property in payment of his debts, he cannot reserve any portion of the property or its proceeds for his own benefit and advantage; and if he stipulates for such reservation, it will render the whole transaction fraudulent and void. In McClurg v. Lecky, 3 Penn. Rep. 91, Mr. Justice Rogers said: “ The rule clearly deducible from all the cases is, that no debtor can, in an assignment, make a reservation, at the expense of his creditors, of any part of his income or property for his own benefit; nor can he stipulate for any advantage either to himself or family.” This rule is equally applicable when the transaction takes the form of an absolute sale, and there is a secret stipulation by which some pecuniary benefit or advantage is reserved for the vendor. And, accordingly, it has been held that a bill of sale, absolute upon its face, by an insolvent debtor, and delivery of possession of the goods in pursuance of it, is fraudulent and void as against creditors, if accompanied by a secret trust from which the debtor might derive advantage or pecuniary benefit: McCulloch v. Hutchinson, 7 Watts 434; Shaffer v. Watkins, 7 W. & S. 219; Connelly v. Walker, 9 Wright 449. There was. then no error in affirming the plaintiff's fifth, seventh and eighth points, and in instructing the jury, in conformity therewith, in the general charge, that if Roller was insolvent at the time he made the assignment to Bentz, and there was an agreement between Roller and Bentz, not inserted in the writ [78] ten transfer or assignment, that a portion of the property assigned or the proceeds thereof, should be returned to Roller and be for his benefit and advantage — and a note was given by Bentz to Roller for the sum of $1171.25 — that is such a reservation as would render the transaction fraudulent and void as to creditors, although it might be good as between the parties themselves. There was abundant evidence to justify the court in giving the instruction and submitting the question to the jury. The bill of sale is absolute on its face, and yet by a secret verbal arrangement, as both parties admit, it was agreed that Roller should get hack a portion of the property for working out or tanning the stock. What was this but a reservation of so much of the property for the use and benefit of Roller ? Besides, the understanding, as Bentz testified, was, that the money was to be made out of the stock before he paid the note of $1171.25, given in part payment of its price. Nor was it by an independent subsequent agreement that a portion of the property was thus retained. It was part of the transaction and contemporaneous with its consummation. The bill of sale, it is true, was drawn up and signed on Saturday, in the borough of Dillsburg, about twenty miles from the tannery. But there was no delivery of the property, nor was it intended there should be. Bentz went up to take possession on the following Monday, and it was then and there agreed that Roller should have the horse and wagon, saddle and bridle, the potatoes and corn, and the tanners’ tools for working out the stock. How then can it be seriously claimed that a portion of the property was not reserved for the use of Roller ? The bill of sale showed on its face that the whole of the property described in the schedule was purchased by Bentz, including the articles reserved, and yet the title to the latter did not pass by the sale as between the parties themselves, for they did not intend thatit should. How could the creditors of Roller, by an inspection of the bill of sale, come to a knowledge of the fact that any portion of the property was his? Apparently, Bentz was owner of the whole, though he was secretly holding a part of it for Roller. If an absolute conveyance of goods to a creditor, accompanied by a secret trust, tends to delay, hinder and defraud creditors, and so is within the letter and spirit of the statute of 13 Elizabeth, as was said in Connelly v. Walker, it is clear that the sale in this case cannot stand. Nor was there any error of which the defendant has any right to complain, in charging the jury that there was a method free from all legal objections by which the defendant might have been secured; that was to obtain judgment against Roller, issue execution and sell his property at sheriff’s sale. Such a sale would have been legal. That method he did not pursue, and if he took ■a different course, and one which the law declares to be fraudulent [79] as to creditors, he must suffer the consequences of his mistaken action. The complaint is that this was indirectly telling the jury that the sale was fraudulent. But under the evidence the court might, and ought to have instructed the jury that the sale, whether fraudulent in fact or not, which was a question for their determination, was clearly fraudulent in law, because there was no such ■‘change of possession as the law requires in order to render a sale valid as against creditors. It was a clear case of retained possession by the vendor. There was not even a symbolical delivery of the property. After the sale all things continued as before, with the exception that Bentz become responsible for the rent of the tannery, which was afterwards paid by Roller out of the proceeds of the tan-bark which he sold to Diehl. That there was no change of possession whatever is shown by the testimony of Bentz. He says : “ At the time of the signing of the bill of sale, I was twenty miles from the tannery, and when the note for $>1171 was given, on the day of the sale, I did not see the property; the Monday I went there and did not move any of the property, nor do anything with the property. We moved the corner cupboard out of the house into the tan-yard house — the tan-house ; we did not move the cupboard from the premises. I went away that day, and left everything as it was there. I left Roller there in charge of the property, and it continued in his possession until the 1st of April.” The next assignment of error embraces the answer to the defendant’s first point, in which the court was asked to charge that the presumption of law is always in favor of innocence and against fraud ; and fraud must therefore always be proved, and cannot be presumed ; and the jury are not at liberty to find the sale of property by Roller to Bentz to be fraudulent, in the absence of evidence to establish the fact either positive or circumstantial. The court in answer said: “ that the position of law as staled in this point is correct; but there are certain acts which constitute legal or technical fraud. Whether this case comes within the rule relating to them, is a matter upon which the court will hereafter instruct you.” If the learned judge failed to give the instructions promised, as complained, it did the defendant no harm; but the complaint does not seem to be well founded; for in a subsequent part of the charge the court instructed the jury that legal fraud in an assignment of property is the absence of actual delivery of the property-such delivery as the nature of the property is susceptible of. The delivery must not be secret, but open, notorious and exclusive. The terms upon which it is transferred, to make it legal, must be free from all engagements to deliver any portion of it for the benefit of the vendor, or of any reservation of any portion of it for the future benefit of the vendor or for his advantage. And the court left it to the jury, under these instructions, [80] to find whether the sale was fraudulent in law or not. As the court would have been justified in charging that, upon the defendant’s own testimony, the sale was fraudulent in law, the instruction was more favorable to him than he had any right to ask. We come now to the answer of the court to the defendant’s second point, in which it is alleged that there was error. Correcting what is evidently a typographical mistake in the last clause of the answer as printed in the paper-book, by substituting “no” for “the” before the word “effect,” the court instructed the jury that if the debt which Roller owed Bentz was an honest one, on the 1st of September 1866, Bentz had a perfect legal right to receive in payment of it any money or property Roller had to give, provided Bentz received it without an intention to hinder, delay or defraud creditors, or that the transfer had in law no effect to hinder, delay or defraud creditors. The last clause of the answer embraces the instruction complained of as erroneous. It will be seen that it is not the same proposition as that already considered in answer to the plaintiff’s sixth point. There the instruction had reference to the tendency and effect of the sale as a matter of fact to be determined by the jury. Here the instruction has reference to the effect which the law imputes to the transaction. If the law adjudges its effect to be to hinder and defraud creditors, then it is to be regarded as fraudulent, though this may not have been the intention of the parties. This seems to have been the thought in the mind of the learned judge, though he may have failed to express it with his usual clearness. If, then, the meaning of the clause be as suggested, there was no error in the answer. We have now considered all the assignments except the last, which is not in accordance with the rule, and was abandoned on the argument, and we find no error in the instructions given to the jury except in charging that if the tendency and effect of the sale was to hinder, delay and defraud the creditors of Roller, then the sale was illegal and void as against such creditors. Must we reverse the judgment for this error ? Undoubtedly we must,-if it did the defendant any harm. But if not, then we are not required to reverse the judgment and award a new trial, which could be of no possible benefit or advantage to the defendant. The sale, whether fraudulent in fact or not, was clearly fraudulent in law, not only because a portion of the property embraced in the bill of sale was secretly reserved for the use and advantage of Roller, but because there was no such delivery of the property or change of possession as the law requires. Upon ho question of law presented by either of the points on which the court was requested to charge, nor upon any view of the facts as testified to by the parties to the sale, was the defendant entitled to a verdict. The error, therefore, did him no possible harm, and the judgment must be affirmed. Judgment affirmed.