Lake Shore Banking Co. v. Fuller

Mr. Justice Gkeen delivered the opinion of the court, October 5th, 1885. In 1848, in Blakey’s Appeal, 7 Barr, 449, we held that judgments confessed to secure creditors are not such preferences as are avoided by the Act of 1843, although an assignment for creditors was intended and was shortly afterwards executed. Coultek, J., said: “ Whilst a man retains dominion of his property he may encumber and convey it as he pleases, if not directly forbidden by law, and prefer such creditors by payment or transfer as he chooses.” In Uhler v. Maulfair, 11 Harr., 481, Ave said: “ The principle is doav too Avell settled to require further authority or argument, that so long as a debtor retains dominion over his property he may prefer one creditor to another and that such [163] preference is not fraudulent either in law or in fact .” The “ unfortunate ” case of Summer’s Appeal, 4 Harr., 169, which held that the scienter of the defendant in the judgment as to his solvency or insolvency determined the validity or invalidity of the judgment as a preference, was overruled, as indeed had practically been done in Covanhovan v. Hart, 9 Harr., 495. In the latter case Black, C. J., said : “We are not permitted to assign a bad motive to an act which is not wrong either in itself or in its necessary consequences. A creditor is not acting wrongly when he receives payment or takes security for his debt, though he knows that other persons who have the same rights with himself may be loss vigilant or less fortunate. The act being right no secret feeling can change its character. Indeed it may be said that the motive which results in proper action cannot be a bad one.” In York Co. Bank v. Carter, 2 Wr., 446, Strong, J., speaking of the supposed applicability of the Statute of 13th Eliz. to a preference which in effect defeated other creditors, said: “ There is, however, a distinction to be observed between the effect of a conveyance by a debtor in failing circumstances, made to pay one or more of his debts, and that intent to hinder and delay his other creditors against which the Statute of 13 Eliz. is aimed. An insolvent creditor may prefer one creditor to another by judgment or deed in any mode except by an assignment in trust. The effect of such preference may be to delay a creditor not preferred, in fact to prevent his obtaining payment at all; but if the motive, the honest intent was to pay the preferred debt the transaction is not invalidated by the statute. The statute of 13 Eliz. is aimed only at intended fraud. But the payment of a debt to one creditor is no fraud upon another creditor, no legal injury to him.” In Wilsou v. Berg, 7 Norn, 167, in pronouncing upon the effect of a judgment confessed a few days before making a general assignment, the present Chief Justice said: “ Tt has however been held that the confession of a judgment to one creditor, just before making a general assignment, and with a view of preferring such creditor, did, not defeat the prior lien which he thereby acquired to the prejudice of other creditors : Blakey’s Appeal, 7 Barr., 449; Worman v. Wolfersberger’s Executors, 7 Harr, 59. Hence, although the intention of the debtor was to remove from the operation of the subsequent assignment, a portion of his estate and his conduct produced that result, yet the validity of the assignment is not thereby impaired. The preference was not in and by the instrument through and by means of which the debtor surrendered to his creditors all dominion over his property. No law compels a debtor to make [164] an assignment for the benefit of his creditors. It permits him so to do, and directs as to its effect when done. Prior to such action, except as against a bankrupt law, he has an undoubted right to prefer any of his creditors, by a conveyance or transfer of property, or by a confession of judgment, although he may thereby hinder or forever prevent his other creditors from collecting their just demands.” This case rules first, that the mere confession of a judgment by a debtor just before making a general assignment is not invalid as an act done with intent to hinder and delay creditors; and second, that it is not giving a prohibited preference, contrary to the Act of 1843, which avoids preferences in general assignments, because it is not a preference contained in the assignment. In Walker v. Marine Nat. Bank, 2 Out., 574, Sharswood, C. J., said: “ It is well settled that the confession of a judgment to a bona fide creditor,» even though it have the* effect of giving him a preference over other creditors, is not a fraudulent disposition of an insolvent estate. It was held by this court in Covanhovan v. Hart, 9 Harr., 495, that a conveyance of land by a debtor in failing circumstances to a creditor to pay an existing debt is not fraudulent although the parties contemplate that thereby the claims of other creditors will be defeated. Putting aside then, all the evidence in this case that the parties confessed the judgment with the very purpose and design of securing for it a priority over the judgment of other creditors impending and about to be entered, the sole question was this: Was the plaintiff a bona fide creditor of the firm Caughey, Walker & Co. at the time the judgment was confessed? ” We have brought together the foregoing utterances of this court in order that it may be seen at a glance how we have heretofore regarded the chief facts which are relied upon to defeat the judgments obtained by the plaintiffs in error. The substance of the decisions quoted was recognized by the learned court below who charged the jury in accordance with their spirit and almost in their words. But the effect of this part of the charge was all lost by the remaining portion, in which he instructed the jury, though with “ considerable hesitation,” that if at or before the giving of the judgment notes in question, the debtors, Humphrey and Aspinwall, had determined to make an assignment for the benefit of creditors, and to give the plaintiffs in the judgments a preference and byway of effectuating such preference as part of the assignment, with the intent and for the purpose of avoiding the law forbidding Ereferences, executed the notes in question, procured them to e entered and executions to be issued on them without the [165] knowledge of the plaintiffs in the judgments, this would be a fraud upon the Act of 1843 forbidding preferences in assignments. Reduced to its simple elements this ruling means, as we understand it, that if a debtor who is about to make an assignment, confesses a judgment to a bona fide creditor for the purpose of giving him a preference, such judgment is a fraudulent preference under the Act of 1843. We do not think this is the law of this Commonwealth and therefore we cannot assent to it. We are not referred to a single case by the learned counsel for the defendants in error in which this doctrine has been held, and we are not conscious of any except the “ unfortunate ” one of Summer’s Appeal, 4 Harr., 169. But that ease was repudiated and overruled by this court so many years ago that it is of no authority whatever and has long been so regarded by the bench and bar of the state. The judgments in this case were confessed and entered and executions issued upon them one day before the execution of the deed of assignment. They were no part of the assignment but entirely independent of it. They were not delivered to the same persons; they were not executed at the same time; the rights they conferred had become completely vested and were enforced by execution process one whole day before the assignment had any existence whatever. Those rights were adversary to the rights conferred by the assignment and such adversary character was not illegal. How then can it be said that they are void because of an Act which prohibits preferences in assignments, that is, as part of the assignment, when in point of fact they are no part of it, but independent and hostile to it? We cannot see. It is implied from the language of the charge that they can be treated as a preference because the debtors intended by giving them, to prefer the creditors to whom they were given over their other creditors. But that is precisely what we have many times held an insolvent debtor may do so long as he has dominion over his property. The idea is also embodied in the charge that if the judgments were confessed with intent to avoid the law forbidding the preferences, they would be thereby invalidated. But this is not tenable. The Act of 1843 simply prohibits preferences in assignments, or rather provides that they shall enure to the benefit of all the creditors. The only question that can arise as to this Act in a given case is, whether the assignment contains a preference. If it does not, that is the end of the controversy. If it does, the preference simply enures to the benefit of all the creditors, and does not in the least avoid the assignment. The Act of 1813 neither prohibits nor makes any provision respecting other transactions done with intent to give a preference. Hence their validity depends upon considerations outside of [166] the Act of 1848. • We think the learned court confounded acts done with intent to hinder, delay and defraud creditors, under the statute of 13th Eliz. with acts done with intent to avoid our law of 1843. But the two classes do not belong in the same category for the simple reason that the Statute of Elizabeth does expressly invalidate acts done with intent to hinder, delay and defraud, while the Act of 1843 contains no such provision. Under the statute the actual fraudulent intent is the material ingredient or occasion of invalidity Under our Act the presence of a preference in a deed of assignment is the essential of invalidity. This distinction is illustrated in another connection in the language heretofore quoted from the opinion of Judge Strong in York County Bank v. Carter, 2 Wr., on p. 453. But the precise point was ruled by this court in Mellon’s Appeal, 1 Grant’s Cases, 212, where a debtor, at the very time of making a general assignment, though a few minutes before signing the deed, assigned part of a judgment to a creditor whom he desired to prefer. We sustained the preference on the sanie ground as in the other cases, to wit, that at the time of the transaction the debtor “ had the undoubted right to pay such of his creditors as he chose, and this, too, without regard to the effect it would have upon other creditors.” Nor can we agree that a mere intent of the debtor, unexpressed to the creditor, to give him a preference by paying or securing the debt although at the time he contemplated, and soon after executed, a general assignment, operated to defeat such preference on the ground that it is contrary to the Act of 1843. Such an intent is not unlawful and cannot be inferred from a proper act. But even if it were, the creditor who has a perfect right to accept payment or security of his debt and has not participated in the alleged unlawful intent, should not be compelled to forfeit his preference on that account. He at least is innocent and may in good conscience hold the advantage he has obtained. The views we have expressed require us to sustain the 10th, 11th, 12th, 14th and 15th assignments and on them the judgment is reversed. While it is possibly true that the matters covered by the other assignments are immaterial to the issue, yet as there seems to have been a question of actual intent to hinder, delay and defraud, and perhaps some question as to the consideration of the judgments in controversy, we will not reverse on those assignments. As a matter of course the preferences contained in the assignment are nugatory and of no effect. No discussion as to them is necessary. Judgment reversed and venire de novo awarded.