M'Culloch v. Hutchinson

The opinion of the Court was delivered by Sergeant, J. By the statute of 13 Elizabeth, c. 5, which is in force here, and which has been considered as made in affirmance of the common law, conveyances by debtors to the end, purpose and intent to delay, hinder or defraud creditors in the recoveryof their debts, are declared fraudulent and void as against such creditors. The statutes on this subject are liberally expounded for the protection of creditors, and) to meet the schemes and devices by which a fair exterior may be given to that which is in reality collusive. The means may be varied, but the words of the law are general, and embrace them all. A bill of sale by a debtor to one preferred creditor, purporting on its face to be an absolute conveyance of the goods of the debtor at a fixed price, but in reality accompanied with a secret trust that the creditor shall hold and dispose of the goods for the discharge of a debt much less in amount and pay over the balance to the debtor, is manifestly a contrivance by which other creditors may be hindered and prevented in the recovery of their debts. It is the secrecy of this trust, a (rust incompatible with that which appears on the face of the transaction, that constitutes its illegality. When the trust openly constitutes a part of a verbal assignment, or is apparent on the face of a written instrument, no harm is done. [436] The creditor is informed of the nature of the conveyance and of the destination of the property, so that he can with full information avail himself of his legal remedies for a resort to that surplus. No more is effected by a conveyance with such a stipulation on the face of it, than the law would annex without it: and assignments of this description were accordingly held by this court to be legal in the cases of Livingston v. Bell, 3 Watts 198, and Rahn v. M’Elrath, 6 Watts 151. But there is another class of cases, where the trust is secret and the creditor liable to be misled and deceived and thrown off his guard, and the debtor enabled to collude with the assignee for the appropriation of the surplus to his private use, without fear from the interposition of the law to compel him to apply it to the payment of his other debts. Passmore v. Eldridge, 12 Serg. & Rawle 198. A preference may be given by a debtor, though insolvent, to an honest creditor. A sale may be made by such debtor at a specified price. But honesty and fair dealing require that the truth of the transaction should concur with its appearances; that the whole truth should be developed, and that the transaction should not wear the aspect of a simple sale or preference, and yet in fact be merely a disguise or colour, by means of which the debtor is enabled to enjoy a secret interest in and control over the goods and their proceeds of w'hich other creditors are not informed by the proceeding itself. It is thus said by Tilghman, C. J.: “there is no intimation on the face of the deed of the reservation of any part for the benefit of the debtor: therefore, if there was any such reservation it was secret; at least it was not disclosed in such a manner that the other creditors could come to the knowledge of it by inspection of the writing. In what a situation then are they placed 1 If one of them lays an execution on the hides, the deed is produced by which they are protected; and yet the debtor by this private agreement is entitled to part of them. What is (his but a collusion between the debtor and a preferred creditor to protect the property of the debtor from the execution of other creditors'? It falls directly within the words and spirit of the statute of 13 Elizabeth.” 12 Serg. & Rawle 201. In the present instance the debtors were insolvent; and other creditors had obtained judgment against them, when, by an arrangement with the plaintiffs, the debtors made an absolute bill of sale in writing of their store of goods to the plaintiffs to the value of 504 dollars 99 cents, purporting to be in consideration of 350 dollars, and delivered them possession; but all this was accompanied with a private verbal understanding, that the plaintiffs were to hold them, not as their own, but in order to carry on the store and dispose of the goods, and first pay themselves the amount of the debt due to them, then amounting to but 280 dollars, after receipt of which the balance was to be paid over to the debtors. It was while the goods were thus held under the assignment that the plaintiffs in the judgment issued their execution and sold the goods, on the ground that the [437] conveyance was in law fraudulent and void : and we are of opinion, that the fact proved in the case, and which is uncontroverled, of the existence of this private arrangement, renders the transaction a fraud per se; that it is a conveyance to the end, purpose and intent to hinder and prevent creditors wilhin the words and meáning of the statute of Elizabeth; and that there was no error in the court below charging the jury to that effect. Judgment affirmed.